Probabilistic Mechanism Design in Diffusion Auctions

Abstract: A diffusion auction refers to a selling process conducted over a social network, where each participant submits a bid and may invite other potential buyers to join the auction. Although various mechanisms have been proposed, none of them can simultaneously achieve incentive compatibility, non-negative revenue, and approximate efficiency with a constant approximation bound. In this paper, we propose the Probabilistic Diffusion Mechanism (PDM), a novel mechanism tailored for path graphs, which satisfies all three desired properties. We further extend PDM to general network structures through a map $f$, resulting in the $f$-PDM mechanism, which preserves the key properties of the original design. Beyond these, when $f$ satisfies properties such as breadth-first order, $f$-PDM also ensures Sybil-proofness and provides approximate revenue. Furthermore, to address buyer collusion, we introduce a modified version of the mechanism that balances collusion-proofness with revenue approximation. Finally, we extend the design to multi-unit diffusion auctions -- a more challenging setting -- and propose a simple yet effective mechanism, Multi-Unit PDM (MUPDM), that achieves approximate efficiency while maintaining IC. Moreover, we design Sybil-Proof MUPDM (SP-MUPDM) to resist Sybil attacks in the multi-item scenario.