The value of knowing a demand curve: bounds on regret for online posted-price auctions
Kleinberg, R.; Leighton, T.
Foundations of Computer Science, 2003. Proceedings. 44th Annual IEEE Symposium on
Volume , Issue , 11-14 Oct. 2003 Page(s): 594 - 605
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Summary: We consider price-setting algorithms for a simple market in which a seller has an unlimited supply of identical copies of some good, and interacts sequentially with a pool of n buyers, each of whom wants at most one copy of the good. In each transaction, the seller offers a price between 0 and 1, and the buyer decides whether or not to buy, by comparing the offered price to his privately-held valuation for the good. The price offered to a given buyer may be influenced by the outcomes of prior transactions, but each individual buyer participates only once. In this setting, what is the value of knowing the demand curve? In other words, how much revenue can an uninformed seller expect to obtain, relative to a seller with prior information about the buyers' valuations? The answer depends on how the buyers' valuations are modeled. We analyze three cases - identical, random, and worst-case valuations - in each case deriving upper and lower bounds which match within a sublogarithmic factor.

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