MICRO/THEORY: Optimal Auction Design for Dynamic Stochastic Environments: Myerson Meets Naor; Professor Yeon-Koo Che (Columbia University)

Allocation of goods and services often involves both stochastic supply and stochastic demand. Motivated by applications such as cloud computing, gig platforms, and blockchain auctions, we study the design of optimal selling mechanisms in an environment where buyers with private valuations arrive stochastically and are assigned goods that also arrive stochastically, and either buyers or goods can be held in a queue at costs until allocation. The optimal mechanism dynamically leverages competitive pressure across time by managing the queue of buyers and inventory of goods, using reserve prices that increase with the number of buyers in the queue and decrease with the number of items in inventory, and an auction to allocate the goods.