A Double Auction Mechanism for e-Marketplace

We study the problem of designing truthful double auction mechanism for e-marketplace with many buyers and many sellers. Existing exchange models for e-marketplace are typically buyer-biased, and sellers may be reluctant to join the exchange fearing the severe competition involved. To address this problem, we propose a new mechanism that induces competition in both sides; thus, it is fair to both buys and sellers, and achieves very high efficiency. This mechanism is also capable of explicitly handling transaction related costs, such as costs related to quality problem, deliveries, and product customization. We show under this mechanism, truthful bidding is a dominant strategy for all the buyers and sellers. Furthermore, the mechanism achieves asymptotic efficiency by just solving two linear programs. This is significant considering the fact that the efficiency maximization problem with complete information is NP-hard.