Revenue Guarantee Equivalence between Dominant-Strategy and Bayesian Mechanisms

Abstract

In auction design with limited information about bidders' value distributions, we provide an optimality foundation for dominant-strategy mechanisms. We show that simple dominant-strategy incentive compatible (DIC) mechanisms–either a second-price auction with a random reserve or the standard second-price auction without a reserve–achieve a revenue guarantee equal to the worst-case optimal revenue attainable by Bayesian incentive compatible (BIC) mechanisms, thereby establishing a robust form of DIC-BIC equivalence.