Strategy proof electronic markets

In electronic double auctions, property of incentive compatibility is very important. Incentive compatibility ensures that truthful bidding is the dominant strategy. Other important properties in electronic auctions are budget balance (BB) and individual rational (IR). The former ensures that the auction does not run in loss whereas the latter ensures voluntary participation. However these can be achieved only after sacrificing efficiency. The mechanisms based on uniform clearing price have been proposed in literature. Such mechanisms satisfy the properties of BB and IR. They are incentive compatible. However uniform price auction mechanism suffers from the problem of demand shading. Due to demand reduction, agents can acquire units at a lower price. This affects the property of incentive compatibility. Another problem with this approach is that it is not false name proof, meaning that agents can submit bids under different names to improve their utility. In electronic markets, where bids and asks are submitted remotely this property is very important. In this paper we propose discriminatory price mechanism, which is strategy proof, individually rational and budget balance. It is also false name proof, meaning agents cannot improve their utility by submitting false name bids.