Optimal Auction Design for Dynamic Stochastic Environments: Myerson Meets Naor

Abstract

Motivated by applications such as cloud computing, gig platforms, and blockchain auctions, we study optimal selling mechanisms for dynamic markets with stochastic supply and demand. In our model, buyers with private valuations and homogeneous goods arrive stochastically and can be held in queues at a cost. The optimal mechanism pairs allocative efficiency with dynamic admission control: goods are assigned to the highest-value buyer, while entry is restricted by value thresholds that strictly increase with the queue length and decrease with available inventory. This policy smooths competitive pressure across time and is implemented in dominant strategies via auctions with dynamic reserve prices.