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The competition complexity of dynamic pricing

Brustle, Johannes, Correa, José, Dütting, Paul and Verdugo, Victor (2022) The competition complexity of dynamic pricing. In: EC 2022: Proceedings of the 23rd ACM Conference on Economics and Computation. EC 2022 - Proceedings of the 23rd ACM Conference on Economics and Computation. Association for Computing Machinery, Inc, 303 - 320. ISBN 9781450391504

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Identification Number: 10.1145/3490486.3538366

Abstract

We study the competition complexity of dynamic pricing relative to the optimal auction in the fundamental single-item setting. In prophet inequality terminology, we compare the expected reward Am(F) achievable by the optimal online policy on m i.i.d. random variables drawn from F to the expected maximum Mn(F) of n i.i.d. draws from the same distribution. We ask how big does m have to be to ensure that (1+ϵ) Am(F) ≥ Mn(F) for all F. We resolve this question and exhibit a stark phase transition: When ϵ = 0 the competition complexity is unbounded. That is, for any n and any m there is a distribution F such that Am(F) > Mn(F). In contrast, for any ϵ < 0, it is sufficient and necessary to have m = φ(ϵ)n where φ(ϵ) = φ(log log 1/ϵ). Therefore, the competition complexity not only drops from being unbounded to being linear, it is actually linear with a very small constant. The technical core of our analysis is a loss-less reduction to an infinite dimensional and non-linear optimization problem that we solve optimally. A corollary of this reduction, which may be of independent interest, is a novel proof of the factor ∼0.745 i.i.d. prophet inequality, which simultaneously establishes matching upper and lower bounds.

Item Type: Book Section
Official URL: https://dl.acm.org/doi/proceedings/10.1145/3490486
Additional Information: © 2022 ACM.
Divisions: Mathematics
Subjects: Q Science > QA Mathematics > QA75 Electronic computers. Computer science
H Social Sciences > HB Economic Theory
Date Deposited: 10 Aug 2022 15:42
Last Modified: 15 Sep 2022 07:42
URI: http://eprints.lse.ac.uk/id/eprint/115958

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