The simple economics of approximately optimal auctions

Abstract—The intuition that profit is optimized by maximiz-ing marginal revenue is a guiding principle in microeconomics. In the classical auction theory for agents with quasi-linear utility and single-dimensional preferences, Bulow and Roberts [1] show that the optimal auction of Myerson [2] is in fact optimizing marginal revenue. In particular Myerson’s virtual values are exactly the derivative of an appropriate revenue curve. This paper considers mechanism design in environments where the agents have multi-dimensional and non-linear pref-erences. Understanding good auctions for these environments is considered to be the main challenge in Bayesian opti-mal mechanism design. In these environments maximizing marginal revenue may not be optimal, and furthermore, there is sometimes no direct way to implement the margina