Research

Published

Working Papers

Abstract: We investigate the stability of internet platform trading mechanisms using the notion of ex-ante incentive compatible core defined by Forges, Mertens and Vohra (2002) in the context of an exchange economy. A mechanism can be blocked by a single buyer and seller pair if they can find an interim incentive-compatible trading mechanism that gives them higher ex-ante expected utilities. Standard double auction mechanisms like the trade reduction mechanism and the McAfee double auction mechanism are not single-buyer-single-seller (SBSS) ex-ante stable. We show that the revenue-maximizing mechanism of the platform is also not SBSS ex-ante stable. We characterize interim incentive-compatible, interim individually rational symmetric revenue-maximizing mechanisms that are SBSS ex-ante stable using methods in Myerson and Satterthwaite (1983).