Two-sided Market Design Meets Autobidding

2026-09-30

AI Summary

This study addresses the efficiency loss and incentive incompatibility challenges induced by Return-on-Spend (RoS) auto-bidders in two-sided markets, where price disorder arises in the absence of prior assumptions. By leveraging game theory, mechanism design, and auction theory, this work models the problem and proposes a distribution-informed incentive-compatible mechanism that circumvents the constraints of the Myerson-Satterthwaite impossibility theorem. The primary contribution lies in introducing a novel mechanism that guarantees individual rationality, budget balance, and optimal liquidity welfare when one side consists of RoS maximizers. Furthermore, under specific conditions, the proposed framework achieves optimal gains from trade, offering a theoretically grounded solution to market inefficiencies caused by automated bidding strategies.

Abstract

Autobidding has become a dominant paradigm in online advertising by enabling advertisers to set high-level goals while algorithms handle real-time bid optimization. A prominent example is the Return-on-Spend (RoS) value maximizer, which maximizes total value subject to an aggregate value-per-spend constraint. While most work on mechanism design for autobidders focuses on one-sided markets, many real-world platforms involve strategic behavior on both sides. We initiate the study of two-sided markets with autobidders. We first establish a stark negative result: for the challenging objective of liquid gains from trade (LGFT) in the prior-free setting, broad classes of utility-truthful, budget-balanced mechanisms have unbounded Price of Anarchy (PoA) once value-maximizing agents are present, even in double-auction environments. We then give two positive results. In the prior-free repeated double-auction setting, McAfee's Trade Reduction mechanism has unbounded PoA for LGFT but achieves constant PoA for liquid welfare under RoS bidding, showing that off-the-shelf mechanisms retain meaningful welfare guarantees. With distributional information regarding the private costs and values, we design a two-sided mechanism that is incentive compatible for each agent under its corresponding objective, individually rational, ex-ante weakly budget balanced, and achieves first-best liquid welfare, equivalently optimal LGFT, whenever at least one side of the market consists of RoS value maximizers. This result applies to matching markets with general downward-closed feasibility constraints. It contrasts sharply with the Myerson--Satterthwaite impossibility theorem~\citep{MS83}, which rules out first-best efficiency with incentive compatibility, individual rationality, and budget balance even in bilateral trade when both the buyer and the seller are quasi-linear utility maximizers.

Problem

• Two-sided Market Design
• Autobidding
• Return-on-Spend (RoS)
• Price of Anarchy (PoA)
• Liquid Welfare

Innovation

• Two-sided Market Design
• Autobidding
• Return-on-Spend (RoS)
• Liquid Welfare
• Mechanism Design