Beyond Winner-Take-All Procurement Auctions

2026-03-29

AI Summary

This study addresses the centralization issue in blockchain procurement auctions arising from “winner-takes-all” allocations by balancing social cost minimization with decentralization. The authors propose a family of single-item procurement auction mechanisms parameterized by a tunable α, which continuously interpolates between uniform allocation and winner-takes-all by modifying the social cost objective. Their key contributions include the first explicitly non-winner-takes-all dominant-strategy incentive-compatible (DSIC) mechanism, an alternative Sybil-resistant mechanism with simplified payments, and a unified analysis integrating mechanism design, Tullock contest models, and game-theoretic equilibrium. They quantify the social cost loss across different α values, establish the existence and security of equilibria for non-DSIC mechanisms, and derive a theoretical upper bound on the price of anarchy.

Abstract

Blockchain protocols often seek to procure computationally challenging work from a decentralized set of participants. While there are simple procurement auctions that result in the minimal cost of acquisition and maximal efficiency, they also lead to concentration in the provider set due to the winner-take-all market structure. We design and analyze single-good procurement auctions that balance social-cost minimization (at the extreme, a winner-take-all auction) with decentralization (at the extreme, a uniform allocation). We first give a dominant-strategy incentive-compatible (DSIC) mechanism explicitly designed to implement non-winner-take-all allocations. Our allocation rule uniquely solves an optimization with respect to a modified social-cost metric that penalizes large, single-player concentrations and is parameterized with a curvature value, $α$, with $α\rightarrow 0$ implementing the uniform allocation and $α\rightarrow \infty$ implementing the winner-take-all allocation. We further quantify the loss in social cost of this mechanism as a function of $α$. We then propose two alternative mechanisms, each addressing a limitation of the DSIC mechanism, namely a lack of Sybil-resistance and a complex payment rule. First, we examine a variation of Tullock contests to achieve a non-winner-take-all Sybil-proof procurement mechanism. Second, we consider a mechanism with the same allocation rule as the DSIC mechanism but with an alternative payment rule in which producers are simply paid proportionally to their bids. This provides a much simpler payment rule which, while not DSIC, still results in the mechanism being ex-post ``safe'' (where there exists a bidding strategy that is guaranteed to result in non-negative utility) for participating bidders. For both non-DSIC mechanisms, we characterize the equilibrium allocations and prove price of anarchy bounds.

Problem

• procurement auctions
• decentralization
• winner-take-all
• blockchain protocols
• social-cost minimization

Innovation

• procurement auctions
• decentralization
• dominant-strategy incentive-compatible
• Sybil-resistance
• price of anarchy