IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2408.12225.html

Fair Combinatorial Auctions: Endogenous Best Execution in Blockchain Trade-Intent Markets

Author

Listed:
  • Andrea Canidio
  • Felix Henneke

Abstract

Trade-intent auctions intermediate around USD~9~billion in monthly trading volume. In these auctions, specialized intermediaries called solvers compete for the right to execute orders across fragmented blockchain-based financial markets. These auctions are combinatorial because executing multiple trade intents jointly generates additional efficiencies. However, there is no best-execution benchmark to determine how to share those efficiencies: the best possible execution of a trade is solvers' private information and must be elicited. We study theoretically the two main mechanisms: batch auctions, in which a group of trades is auctioned off jointly, and independent trade-by-trade auctions. Batch auctions return more total value to traders, but their outcome may be unfair, in the sense of leaving one trader worse off than under independent auctions. We propose a fair combinatorial auction: solvers bid on individual trades and on batches of trades, but a batched bid is filtered out if any trader earns less than an execution benchmark constructed from the bids on individual trades and a counterfactual mechanism. Whether fairness guarantees arise in equilibrium depends on the counterfactual mechanism: independent first-price auctions generate such guarantees; independent second-price auctions do not. These fairness guarantees come at a cost: a lower total value returned to traders.

Suggested Citation

  • Andrea Canidio & Felix Henneke, 2024. "Fair Combinatorial Auctions: Endogenous Best Execution in Blockchain Trade-Intent Markets," Papers 2408.12225, arXiv.org, revised Jul 2026.
    • Handle: RePEc:arx:papers:2408.12225
    as

    Download full text from publisher

    File URL: https://arxiv.org/pdf/2408.12225
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yeon-Koo Che & Ian Gale, 1998. "Standard Auctions with Financially Constrained Bidders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(1), pages 1-21.
    2. Paul Milgrom, 2000. "Putting Auction Theory to Work: The Simultaneous Ascending Auction," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 245-272, April.
    3. Krishna, Vijay & Rosenthal, Robert W., 1996. "Simultaneous Auctions with Synergies," Games and Economic Behavior, Elsevier, vol. 17(1), pages 1-31, November.
    4. Gentry, Matthew & Komarova, Tatiana & Schiraldi, Pasquale & Shin, Wiroy, 2019. "On monotone strategy equilibria in simultaneous auctions for complementary goods," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 109-128.
    5. Meng, Xin & Gunay, Hikmet, 2017. "Exposure problem in multi-unit auctions," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 165-187.
    6. Goeree, Jacob K. & Lien, Yuanchuan, 2014. "An equilibrium analysis of the simultaneous ascending auction," Journal of Economic Theory, Elsevier, vol. 153(C), pages 506-533.
    7. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, July.
    8. Matthew O. Jackson & Leo K. Simon & Jeroen M. Swinkels & William R. Zame, 2004. "Corrigendum to "Communication and Equilibrium in Discontinuous Games of Incomplete Information"," Econometrica, Econometric Society, vol. 72(6), pages 1927-1929, November.
    9. Patrick Legros & Andrew Newman, 2007. "Beauty is a beast, frog is a prince :assortative matching in a nontransferable world," ULB Institutional Repository 2013/7022, ULB -- Universite Libre de Bruxelles.
    10. Dobzinski, Shahar & Lavi, Ron & Nisan, Noam, 2012. "Multi-unit auctions with budget limits," Games and Economic Behavior, Elsevier, vol. 74(2), pages 486-503.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gentry, Matthew & Komarova, Tatiana & Schiraldi, Pasquale & Shin, Wiroy, 2019. "On monotone strategy equilibria in simultaneous auctions for complementary goods," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 109-128.
    2. Szentes, Balazs & Rosenthal, Robert W., 2003. "Three-object two-bidder simultaneous auctions: chopsticks and tetrahedra," Games and Economic Behavior, Elsevier, vol. 44(1), pages 114-133, July.
    3. Rosa, Benjamin V., 2022. "Bid credits in simultaneous ascending auctions," Games and Economic Behavior, Elsevier, vol. 132(C), pages 189-203.
    4. Pesendorfer, Martin & Cantillon, Estelle, 2007. "Combination Bidding in Multi-Unit Auctions," CEPR Discussion Papers 6083, Centre for Economic Policy Research.
    5. Jofre-Bonet, Mireia & Pesendorfer, Martin, 2014. "Optimal sequential auctions," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 61-71.
    6. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    7. Zaifu Yang & Jingsheng Yu, 2024. "An Efficient and General Ascending Menu Auction under Budget Constraints," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 9(1), pages 105-130, December.
    8. Nicholas C. Bedard & Jacob K. Goeree & Philippos Louis & Jingjing Zhang, 2024. "Sealed-bid versus ascending spectrum auctions," Experimental Economics, Springer;Economic Science Association, vol. 27(2), pages 299-324, April.
    9. Bichler, Martin & Paulsen, Per, 2018. "A principal-agent model of bidding firms in multi-unit auctions," Games and Economic Behavior, Elsevier, vol. 111(C), pages 20-40.
    10. Herings, P. Jean-Jacques & Zhou, Yu, 2024. "Equilibria in matching markets with soft and hard liquidity constraints," Games and Economic Behavior, Elsevier, vol. 148(C), pages 264-278.
    11. Le, Phuong, 2018. "Pareto optimal budgeted combinatorial auctions," Theoretical Economics, Econometric Society, vol. 13(2), May.
    12. Hikmet Gunay & Xin Meng & Victor Perez, 2024. "Selling Order in a Sequential Auction," ISER Discussion Paper 1271, Institute of Social and Economic Research, The University of Osaka.
    13. Bobkova, Nina, 2020. "Asymmetric budget constraints in a first-price auction," Journal of Economic Theory, Elsevier, vol. 186(C).
    14. Li, Zhan, 2017. "Shareholder Activism Externalities," MPRA Paper 91635, University Library of Munich, Germany, revised 21 Jan 2019.
    15. Inés Macho-Stadler & David Pérez-Castrillo, 2018. "Moral hazard: Base models and two extensions," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 16, pages 453-485, Edward Elgar Publishing.
    16. Liang Chen & Eugene Choo & Alfred Galichon & Simon Weber, 2023. "Existence of a Competitive Equilibrium with Substitutes, with Applications to Matching and Discrete Choice Models," Papers 2309.11416, arXiv.org.
    17. Määttänen, Niku & Terviö, Marko, 2014. "Income distribution and housing prices: An assignment model approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 381-410.
    18. Bhaskar, Venkataraman, 2015. "The Demographic Transition and the Position of Women: A Marriage Market Perspective," CEPR Discussion Papers 10619, Centre for Economic Policy Research.
    19. Nicolas C. Bedard & Jacob K. Goeree & Philippos Louis & Jingjing Zhang, 2020. "The Favored but Flawed Simultaneous Multiple-Round Auction," Working Paper Series 2020/03, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    20. Kuś, Agnieszka, 2020. "Polish experience from first-ever spectrum auction," Telecommunications Policy, Elsevier, vol. 44(7).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2408.12225. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: https://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.