The Stationary Prophet Inequality Problem

Avnish Kumar
Indian Institute of Science
avnishkumar1@iisc.ac.in

Abstract

This paper presents research on a variant of the classic prophet inequality problem,
called the stationary prophet inequality problem, that considers a continuous and
infinite time horizon. In this problem, goods arrive and disappear according to
Poisson point processes, while buyers arrive and make take-it-or-leave-it offers
for unsold items. Our objective was to optimize the seller’s (infinite) time average
revenue or The ultimate goal is to maximize the seller’s (infinite) time average
revenue.

Our study resulted in pricing-based policies that achieved two main results. Firstly,
we achieved a 1/2-approximation of the optimal offline policy, which is the best
possible. Secondly, we achieved a better than e−1 e -approximation of the optimal
online policy. Our result for the offline policy improved upon the bounds implied by
Collina’s recent work (WINE’20) and represents the first optimal prophet inequality
for a stationary problem. Our result for the online policy improved upon the e−1 e
bound suggested by Aouad and Saritac’s recent work (EC’20), highlighting that
this common bound is not optimal for this particular problem.So the main work lies
on developing pricing-based policies that yield optimal results. Our main results
demonstrate the effectiveness of such policies, achieving a 1/2-approximation
of the optimal offline policy, which is the best possible, and a better than e−1 e
approximation of the optimal online policy.

Submitted to Game Theory Miniproject

1 Introduction
Online algorithms deal with making decisions when faced with uncertainty in market economics.
This field has been studied by probabilists under optimal stopping theory. One common question is
whether to accept the current bid or wait for possibly higher bids in the future. Recent high demand
for online studies in this area is due to their relevance to mechanism design.
Market corporations want to boost their long-term revenue, which can be achieved by producing
enough items to make them available for a long time horizon, while also considering the expiration of
unsold items. Our goal is to find a mechanism that maximizes social welfare and revenue in relation
to mechanism design.
Prophet inequality is a problem that deals with selling a single item, but it has been expanded
to include more complex structures such as multiple items, knapsacks, matroids, matchings, and
downward-closed families. Research in this area has focused on developing algorithms that can
approximate the offline optimum. Recent work has explored the (in)approximability of optimal online
algorithms using poly-time algorithms and posted-price policies. Pricing-based policies can generate
truthful mechanisms that can approximately maximize social welfare and revenue, and some research
has explored the impact of pricing-based policies on social welfare and revenue.
Our paper introduces the concept of the "stationary prophet inequality" problem, which is a continuous
time and infinite time horizon version of the prophet inequality. The problem involves the production
of goods over time, with items of each good arriving and perishing according to Poisson processes.
Buyers with varying valuations for the goods enter the market through Poisson processes, and a policy
is used to determine whether to sell an item to them and which one. The objective is to optimize the
policy to achieve the highest possible average reward over an infinite time horizon while comparing
it to the optimal offline or online policies.
Aouad and Collina recently introduced a problem that is closely related to the dynamic weighted
matching problem. Our problem is a special case of theirs where buyers can leave the market at
any time and their departure rate is infinite. Aouad and Collina developed algorithms that provide
1
4 (1− /e)- and /8-approximations of the optimal online and offline policies for their problem. For our
1 1

problem with a single good, their methods give approximations of (1 − 1/e) and (1 − 1/(e−1)) ≈ 0.418
for the optimal online and offline policies, respectively.
The focus of our work is to use posted price policies to improve the previous bounds by the afore-
mentioned authors.
For the case when seller aims to sell a single item to buyers i arriving in some order, each making a
take-it-or-leave-it bid vi drawn from a known distribution. It has been shown that a 1/2-competitive
algorithm exists, whose expected value is at least half the value obtained by a "prophet" who knows
the future. This result is optimal, as no online algorithm has a higher competitive ratio. Samuel-Cahn’s
1/2-competitive posted-price policy, which sells to the first buyer bidding above a fixed threshold,
foreshadows a long line of research on pricing-based policies motivated by their implications for
truthful mechanisms that maximize social welfare and revenue approximately.

1.1 Improvements over previous method

Our main results concern the single-good stationary prophet inequality problem.

In relation to the problem of stationary prophet inequality for a single good, our main focus is on
presenting the key outcomes.
One of our significant findings is a policy based on pricing, which delivers a competitive ratio of
1/2. This means that the policy approximates half of the value obtained by the optimal offline policy
for this problem. Furthermore, we demonstrate that this bound is the best possible for any policy,
whether pricing-based or not.
THEOREM 1.1:-

2
1/2-competitive-single-good-policy

There exists a 1/2-competitive posted-price policy for the single-good stationary prophet in-
equality problem. No online policy has competitive ratio greater than 1/2.

We introduce an optimal policy for the stationary prophet inequality problem, which is described in
Theorem 1.1: 1/2-competitive-single-good-policy. Our approach is based on the work of Collina,
who propose a policy with a 1/3-competitive ratio by comparing it to a natural LP benchmark . Our
first technical contribution is a queuing-theoretic analysis, which shows that their policy achieves a
competitive ratio of 1 − 1/(e−1) ≈ 0.418. Unfortunately, this is the best possible bound achievable
using their approach. Moreover, we demonstrate that for their LP benchmark, the bound of 1 − 1/(e−1)
is tight.
Our second contribution is a new constraint based on the PASTA (Poisson arrivals "see" time averages)
principle from queuing theory, which is a fundamental result. By combining these queuing-theoretic
and approximation algorithmic ideas, we develop an optimal competitive policy.
Now lets examimne the possibility of achieving higher approximation guarantees for the optimal
online policy.
In their research on the classic prophet inequality problem, Niazadeh discovered that pricing-based
policies are no more effective at approximating the optimal online policy than they are at approximat-
ing the optimal offline policy. In other words, they discovered that an approximation ratio of 1 − 1/e
is the best we can achieve for the i.i.d. setting when compared to both benchmarks.
However, for the stationary prophet inequality problem, the same is not true. Although our inapprox-
imability result of Theorem 1.1 :1/2-competitive-single-good-policy suggests that no competitive
ratio beyond 1/2 is possible, a 1 − 1/e ≈ 0.632 approximation of the optimal online policy can be
obtained using an algorithm developed by Aouad.
We demonstrate that this latter, more commonly utilized bound in the online algorithms literature, is
not optimal for our problem. We present a pricing-based policy that exceeds this limit.
THEOREM 1.2:-
0.656-approximate-single-good-policy

There exists a posted-price policy for the single-good stationary prophet inequality problem
which is a 0.656-approximation of the optimal online policy in expectation.

In the analysis, the paper compares this approach to the LP benchmark of Aouad. Our approach gives
a (1 − 1/e)-approximation of the optimal online policy, which is as accurate as their LP. However, our
new PASTA constraint and analysis surpasses this bound.

Implications for mechanism design. Our pricing-based policies have a direct impact on mecha-
nism design. By using standard connections, we can develop truthful mechanisms that accurately
approximate social welfare and revenue maximization for both offline and online mechanisms.
Theorem: 1/2-competitive-single-good-policy, Theorem: 0.656-approximate-single-good-policy
demonstrate that, unlike in the classic problem Niazadeh, there is a strict separation in the approxi-
mations achievable relative to the optimal offline and online policies in the single-good stationary
prophet inequality problem. Moreover, this difference in achievable approximations via pricing-based
policies, summarized in Table 1, reveals that the stationary prophet inequality problem is on the one
hand harder than the classic problem (when approximating the optimal offline policy) and on the
other hand easier (when approximating the optimal online policy).

3
 Classic1 1 − 1/e (tight) Niazadeh 1 − 1/e (tight) Niazadeh
Stationary 1/2 (tight) ≥ 0.656
Table 1: Achievable pricing-based approximations for the classic and stationary single-good prophet
inequality problems. New results in bold.

In summary, this paper applies algorithm and analytical concepts to develop a solution for the
single-good problem. Building on this, we have extended our approach to the more complex multi-
good problem, utilizing additional stochastic dominance results. Our newly proposed policy has a
competitiveness ratio of 15/56 ≈ 0.267, which is an improvement from the previously established
1/8 = 0.125-competitive policy described in Collina. It may be helpful to explore further details of

our analysis in the appendix to fully understand the approach.

Theorem 1.3:-
competitive-multi-good-policy

There exists a 15/56-competitive policy for the multi-good problem.

The concept of bounded inventory is important in these policies. It’s interesting to note that even
when sellers have limited inventory sizes and must discard items when they have more than a certain
number available, these policies still maintain their approximation guarantees. However, according to
our findings, if the inventory size is too small, this will restrict the achievable approximation of any
policy.

1.2 Techniques

For all of the algorithmic results, The paper follow one common underlying algorithm, adapted from
collina: when a buyer arrives, this algorithm considers each good one-by-one and probabilistically
decides whether or not to sell an item of the good to the buyer, provided at least one such item is
available. The choice of these probabilities is the only distinguishing factor between the description of
the policies of therorems: 1/2-competitive-single-good-policy, 0.656-approximate-single-good-policy,
competitive-multi-good-policy (though not of their analysis).

The above meta-policy is particularly simple, and does not require the seller to perform an “inventory
check”, as it were, but only requires checking availability of goods. (Compare this to the optimal
policy, which often must decide which item to sell to a buyer based on all available inventory.) For
the single-good setting, our obtained policies are even simpler: they are posted-price policies. The
advantage of our simple policies is threefold: first, posted-price policies have immediate implications
for mechanism design, and yield truthful mechanisms for similar settings which approximate the
optimal (online/offline) policy’s social welfare and revenue. Second, as argued by numerous prior
works (e.g., Hartline, simple policies are often preferable in practice, as they are simpler to implement
by practitioners and easier to understand for buyers. Third, and crucially for our analysis, this
non-adaptive approach brings rise to tractable Markov chains, allowing us to analyze the stationary
probability of key events, including availability of goods.

The last point proves important, and allows us, for exmaple, to provide a simple policy for the
single-good problem which provides a (1 − 1/e)-approximation of the optimal online policy’s reward,
matching the bound achieved by a more involved policy of Aouad. Our same queuing-theoretic-based
1
For a more apples-to-apples comparison, we contrast our results with the classic prophet inequality problem
with i.i.d. distributions, mirroring arriving buyers’ types in our problem being drawn from a multinomial
distribution.

4
analysis allows us to improve on the analysis of Collina, and show that their policy, which by their
analysis yields a 1/3-competitive ratio, is in fact 1 − 1/(e−1) ≈ 0.418-competitive.

Unfortunately, our simpler and/or tighter analysis alone does not allow us to improve on these bounds,
obtained by relating the average selling rates of our policy to LP benchmarks of Aouad, Collina,
which bound the reward obtained by the optimal offline and online policies. Indeed, as is shown, both
LPs are limited in their potential for proving optimal (or even improved) approximations; Then get
that these LPs exhibit “gaps” matching the above approximation ratios of 1 − 1/e and 1 − 1/(e−1).

Then address this challenge by introducing a new, quite natural, constraint to the LPs from Collina,
Aouad, which follows from a fundamental result in queuing theory, whereby Poisson arrivals “see”
time averages (PASTA) wolff. Our tighter LPs, along with a rather different proof technique that
relies heavily on analysis of stationary distributions and appeals to stochastic dominance, are the key
to proving stronger approximations for with respect to both the optimal offline and online policies, for
both the single- and multi-good problem, as well as proving the surprising fact that these improved
(or optimal) bounds are attainable using bounded inventory.
This only allows us to achieve a bound approximation ratios of (e−2)/(e−1) and 1 − 1/e for the
single-good problem. In particular, basing our non-adaptive policies on
Our inapproximability result of 1/2-competitive-single-good-policy can be seen as an adaptation of
the classic impossibility result for the classic prophet inequality, which is shown can, in some sense,
be “embedded” in our problem.

For all of the algorithmic results, This paper follow one common underlying algorithm , adapted from
Collina: when a buyer arrives, this algorithm considers each good one-by-one and probabilistically
decides whether or not to sell an item of the good to the buyer, provided at least one such item is
available. The choice of these probabilities is the only distinguishing factor between the policies of
1/2-competitive-single-good-policy, 0.656-approximate-single-good-policy, competitive-multi-good-
policy. In all cases, these probabilities rely on the solution to a linear program (LP) benchmark whose
constraints are satisfied by any offline/online policy and whose objective upper bounds the expected
gain of the optimal offline/online policy. Collina and Aouad proposed similar LP benchmarks for the
optimal offline and online policies, respectively. However, as is shown, both LPs are limited in their
potential for proving optimal (or even improved) approximations. This challenge is addressed by
introducing a new, quite natural, constraint to the LPs from Collina, Aouad which follows from a
fundamental result in queuing theory, whereby Poisson arrivals “see” time averages (PASTA) wolff.
These tighter LPs, along with a rather different proof technique that relies heavily on analysis
of stationary distributions and appeals to stochastic dominance, are the key to proving stronger
approximations with respect to both the optimal offline and online policies, as well as the surprising
fact that these improved (or optimal) bounds are attainable using bounded inventory.

2 Preliminary

In Stationary prophet inequality problem, a seller have n types of goods G, with the objeective to
maximize the seller’s revenue over infinite time.
Items of good i ∈ G are supplied according to poisson point process with rate λi ∈ (0, ∞) and perish
at an exponential rate µi ∈ (0, ∞).
An item is discarded on arrival if the number of available items of the same good equals the seller’s
inventory capacity C. Buyers are unit-demand and arrive according to a Poisson process with rate
γ > 0, with their types drawn i.i.d. from a distribution D over a set of m types B, with type j ∈ B
bidding values vj = (vij )i∈G . Thus, buyers of type j ∈ B arrive according to a Poisson process with
rate γj ≜ γ · Pv∼D [v = vj ].

5
Upon the arrival of a buyer of type j ∈ B, the seller must irrevocably decide whether to sell an
available item of at most one good i ∈ G to the buyer at their bid price, vij , and the buyer immediately
departs after the seller’s decision.
An offline policy for an instance I of the stationary prophet inequality problem knows in advance
the realization of all the randomness of the input, i.e., it knows the times at which items of goods
are supplied and perish, and the times at which different buyers arrive. An online policy, on the
other hand, knows {λi , µi }i∈G and {vj , γj }j∈B a priori, but does not know the realization of future
randomness of the input. An example of online single-good policies are posted-price policies, which
set a pair (v̄, p̄) and accept all bids strictly greater than v̄, accept bids equal to v̄ with probability p̄,
and reject all bids strictly less than v̄. The optimal expected average reward of an unbounded-capacity
offline (resp., online) policy for instance I is denoted by OPToff (I) (resp., OPTon (I)). We measure
online policies’ average reward in terms of their approximation of OPToff (I) and OPTon (I).

2.1 Prior LP benchmarks and a natural algorithm

Consider three types of policies in decreasing order of strength: the optimal offline, the optimal
online, and non-adaptive policies. An offline policy corresponds to a “prophet”, who knows in
advance the arrival and departure times of items and buyers, as well as the latter’s bids. An online
policy does not have advance knowledge of either arrival or departure times, nor of the buyers’
bids. The expected average gain of the optimal offline and online policies for instance I of the
stationary prophet inequality problem is denoted by OPToff (I) and OPTon (I), respectively. Lastly,
a non-adaptive (online) policy does not change over time or based on the state of the system.
Collina and Aouad gave the following LP benchmarks, which upper bound the average gain of any
offline or online policy, respectively.
Let xij be the rate at which an offline policy sells items of good i ∈ G to buyers of type j ∈ B. Then
x = (xij )i∈G,j∈B satisfies the following constraints:
X
xij ≤ λi ∀i ∈ G (1)
j∈B
X
xij ≤ γj ∀j ∈ B (2)
i∈G
λi
xij ≤ γj · ∀i ∈ G, j ∈ B (3)
µi
xij ≥ 0. (4)
If x is the vector of rates derived by an online policy, then x also satisfies the following constraint:
P
λi − ℓ∈B xiℓ
 
xij ≤ γj · . (5)
µi

For all instances I of the stationary prophet inequality problem,

nP o
1. RBoff (I) ≜ max i,j v ij · x ij | x satisfies (1) − (4) satisfies RBoff (I) ≥ OPToff (I),
and nP o
2. RBon (I) ≜ max i,j vij · xij | x satisfies (1) − (5) satisfies RBon (I) ≥ OPTon (I).

The algorithm presented by Collina is a simple non-adaptive solution to the stationary prophet
inequality problem. The objective of this algorithm is to approximately follow the sale rates prescribed
by a solution x to the offline benchmark RBoff, with additional parameters α ∈ [0, 1] and wi
satisfying xij ≤ γj · wi . This algorithm can be generalized to take any x∈ R|G|×|B| as input, and is
outlined in Algorithm 1.
In the multi-good setting, the algorithm works by attempting to match good i ∈ G and buyer type
j ∈ G at a rate close to x∗ij . The role of the parameter α is to increase the probability of a sale of

6
good i to buyer type j, given that an item of good i is available. A lower value of α increases the
probability of items being available. The analysis of the algorithm involves bounding this probability,
for which the queuing theory literature is relied upon.

Algorithm 1
1: for arrival of buyer of type j ∈ B do
2: for each good i ∈ G in a uniform random order do
3: if buyer unmatched and at least one item of good i is available then
x∗ij
4: sell with probability pij ≜ α · γj ·w i

2.2 Queuing theory background

To bound the probability of item of good i ∈ G being an available. Where probability of item being
available is given by PC [Ai ≥ 1], also Ai denotes the number of available items of good i.
Let the inventory capacity of online policy be C ∈ Z>0 and this policy sells any available item of
good i ∈ G to buyers with arrival rate γ ∗ , the probability of an item of good i ∈ G being available
satisfies: !−1
C Y q
X λi
PC [Ai ≥ 1] = 1 − 1 + .
q=1 r=1
r · µi + γ ∗

As a corollary we get the following:

For any online policy with inventory capacity C ∈ Z>0 and which sells any available item of good
i ∈ G to buyers which arrive at rate γ ∗ , the stationary probability of an item of good i ∈ G being
available satisfies
q !−1  q !−1
 
C  C
X 1 λi
X 1 λ i
PC [Ai ≥ 1] ∈ 1 − ∗
, 1− .
q=0
q! µi + γ q=0
q! µ i

NOTE: As C approaches infinity, the lower and upper bounds on PC [Ai ≥ 1] approach 1 −
exp (−λi /(µi + γ ∗ )) and 1 − exp(−λi /µi ), respectively.
Observation:
There exist instances I of the single-good stationary prophet inequality problem for which
OPToff (I) ≤ (1 − 1/(e−1)) · RBoff (I).
Observation:
There exist instances I of the single-good stationary prophet inequality problem for which
OPTon (I) ≤ (1 − 1/e) · RBon (I).

2.3 A new constraint via the PASTA property & new LP benchmarks

Here is the constraint which was not being utilized earlier, which follows from the PASTA property,
Lemma
Let xij be the rate at which an offline (or online) policy sells items of good i ∈ G to buyers of type
j ∈ B. Then xij satisfies the following constraint:
xij ≤ γj · (1 − exp (−λi /µi )) . (6)

Proof. The rate at which a policy sells items of good i to buyers of type j is trivially upper bounded by
the rate at which such buyers arrive and inspect at least one present item. The bound therefore follows
from the PASTA property , together with the upper bound of Pr-available-lower-upper-bounds.

7
Combining pasta-constraint and basic-constraints results in the following tighter bounds.
Corollary For all instances I of the stationary prophet inequality problem,
nP o
1. LPoff (I) ≜ max i,j vij · xij | x satisfies (1) − (4), (6) satisfies LPoff (I) ≥
OPToff (I), and
nP o
2. LPon (I) ≜ max i,j v ij · x ij | x satisfies (1) − (6) satisfies LPon (I) ≥ OPTon (I).

By utilizing Constraint (6), which is a tighter constraint than Constraint (3) due to the fact that
1 − exp(−z) ≤ z holds for all z ∈ R, we can derive improved LP bounds for OPToff (I) and
OPTon (I).

3 Improved approximation ratios

In this section we present the proofs of improved algorithmic results. That is here we show that using
the solutions to the tighter LP benchmarks LPoff or LPon and an appropriate choice of α and wi for
all i ∈ G in Algorithm 1.

3.1 Single-good problem

For the sake of brevity, we will use shorthand notation when there is only one good i being sold.
This means that we will use λ and µ instead of λi and µi , and vj and xj instead of vij and xij . To
simplify matters without changing the result, we will assume that µ is equal to 1. Additionally, we
will sort buyer types so that v1 > v2 > · · · > vm .
NOTE: For single-good problem, Algorithm 1 with α = 1 gives a posted-price policy.
For any instance I of the single-good stationary prophet inequality problem, Algorithm 1 with α = 1
is a posted-price policy if

1. x∗ ≜ arg maxx LPoff (I) and w ≜ 1 − exp(−λ), or

n o
2. x∗ ≜ arg maxx LPon (I) and w ≜ min 1 − exp(−λ), λ − j∈B x∗j .
P

The sale rate. The definition of Algorithm 1 indicates that a buyer of type j can purchase an
item of single good i if the probabilistic test in Line 4 of Algorithm 1 passes, and at least one item
of good i is available. Note that the test in Line 4 is independent of whether an item is available
or not. We refer to a buyer who passes this test as having a permitted bid from the seller. Using
standard Poisson splitting, we can see that buyers with permitted bids of type j arrive at a rate of
γj · pj = x∗j /w. Moreover, by Poisson merging, the arrival rate of buyers with permitted bids (of any
type) is γ ∗ ≜ j∈B γj · pj = j∈B x∗j /w. Using the PASTA property, we can express the selling
P P

rate to buyers of type j for our policy with capacity C as sCj .

PC [A ≥ 1] ∗
sC
j = γj · pj · PC [A ≥ 1] = · xj , (7)
w
where A is the number of available items on arrival of the buyer. In what follows, we will obtain our
algorithmic results of Section 1.1 by lower bounding PC [A ≥ 1]/w, from which our approximation
ratios follow by linearity of expectation.

3.1.1 Proof of Theorem 1.1: 1/2-competitive-single-good-policy

Statement: There exists a 1/2-competitive posted-price policy with capacity C = 2 for the single-
good stationary prophet inequality problem.

8
Proof. Fix an instance I of the single-good stationary prophet inequality problem where the seller has
inventory capacity C = 2. Consider Algorithm 1 where x∗ = arg maxx LPoff (I), w ≜ 1−exp(−λ),
and α = 1, which is indeed a posted-price policy. By definition of w and constraint (1), we have that
∗
P
j∈B xj λ
X
∗
γ = p j · γj = ≤ . (8)
1 − exp(−λ) 1 − exp(−λ)
j∈B

By Section 2.2 and Equation (8), we therefore have that

 −1
 −1 P2 Qq λ
P2
1 − 1 + q=1 r=1 r+γ
Qq
λ 1 − 1 + q=1 r=1 λ
P2 [A ≥ 1] ∗ r+ 1−exp(−λ) 1
= ≥ ≥ ,
w 1 − exp(−λ) 1 − exp(−λ) 2
(9)

The inequality holds for all λ ≥ 0, as can be easily verified by observing that it attains equality as
λ → 0+ . Furthermore, the left-hand side of the inequality is a monotone increasing function of
λ ≥ 0, which can be shown with some effort. Hence, the inequality holds for all λ ≥ 0. A formal
proof of this inequality, stated in the following claim, will be deferred to better-bounds.

3.1.2 Proof of Theorem 1.2: 0.656-approximate-single-good-policy

In this section we prove our results for approximating OPTon (I) for the single-good problem,
restated below.
There exists a posted-price policy for the single-good stationary prophet inequality problem which is
a 0.656-approximation of the optimal online policy in expectation.

Proof. Take an instance of single-good, say I where the seller has inventory capacity
∗
C ∈n Z>0 . Consider Algorithm o 1 where x = arg maxx LPon (I), α = 1, and w ≜
min 1 − exp(−λ), λ − j∈B x∗j , which is a posted-price policy by Section 3.1. By Equation (7)
P

and the linearity of expectation, our policy’s approximation ratio is at least PC [A ≥ 1]/w, where, as
before, A is the number of available items. We therefore turn to lower bounding PC [A ≥ 1]/w.
For this, we will invoke our lower bound on PC [A ≥ 1] of Section 2.2, which requires upper bounds
on γ ∗ —the rate at which buyers arrive and pass the probabilistic check in Line 4. By definition of w,
we have the following bound on γ ∗ :
w + j∈B x∗j λ − j∈B x∗j + j∈B x∗j
P P P
∗ λ
1+γ = ≤ = . (10)
w w w

Warm-up 1 − 1/e bound: Using the above bound on 1 + γ ∗ and appealing to the lower bound of
Section 2.2, we find that our policy with C = ∞ has approximation ratio at least 1 − 1/e, since for
any w ∈ [0, 1] (as is the case for our w ≤ 1 − exp(−λ) ≤ 1), we have that
P  q −1 P −1
∞ 1 λ ∞ wq
P∞ [A ≥ 1] 1 − q=0 q! 1+γ ∗ 1 − q=0 q! 1 − exp(−w)
≥ ≥ = ≥ 1 − 1/e.
w w w w
In order to improve on the above natural bound, we will rely on the following two claims.
The more intricate claim is the following bound on PC [A ≥ 1]/w for w close to 1.
q −1
1−( 61 + 56 · C 1
( 6·x
5 ) )
P
q=0 q!
If w > 1 − exp (−12/5), then, for g2 (C, x) ≜ x , we have that
PC [A ≥ 1]
≥ g2 (C, 1).
w

9
Proof. Observe that the lower bound on PC [A ≥ 1] based on Section 2.2 that we used in ?? follows
by noting that r + γ ∗ ≤ r · (1 + γ ∗ ) for all r ≥ 1, which is lossy for large r. In particular, for r ≥ 2
we have
   
12 12 5 λ 5
r−1≤2·r− = · ·r−1 ≤ · ·r−1 ,
5 5 6 w 6
where the second inequality follows from the fact that w ≥ 1 − exp (−12/5) implies λ ≥ 12/5 and the
fact that w ≤ 1 − exp(−λ) ≤ 1. This, combined with Equation (10) yields
 
λ 5 λ 5 λ
r + γ∗ = r − 1 + 1 + γ∗ ≤ · ·r−1 + = ·r· .
w 6 w 6 w

Rearranging terms, we thus have that for all r ≥ 2,

λ 6 w
≥ · , (11)
r + γ∗ 5 r
This combined with Section 2.2 and Equation (8) yields
 −1 
−1
6·w q
PC Qq λ 1 5
PC 1
PC [A ≥ 1] 1 − 1 + q=1 r=1 r+γ ∗ 1− 6 + 6 · q=0 q! 5
= ≥ = g2 (C, w).
w 1 − exp(−λ) w

The claim then follows since g2 (C, w) is monotone decreasing in w.

we obtain the following:

∗
sC
j ≥ min{g1 (C, 1 − exp(− /5), g2 (C, 1)} · xj .
12 (12)

The above bound is at least 0.656 for all C ≥ 5. By linearity of expectation, we conclude that our
policy’s average gain is at least a 0.656 fraction of the average gain of the optimal online policy.

A small (but large enough) inventory suffices. Our proof of Theorem 1.2, which concerns a
0.656-approximation single-good policy, shows that a capacity of C = 5 is sufficient to achieve a
≥ 0.656 approximation of OPTon (I).
Further analyzing Equation (12) for different inventory capacities, we obtain various bounds. For
instance, when C = 3, we surpass the natural 1 − 1e barrier, and a C = 1 capacity yields a 12
approximation.
On the other hand, Section 3.1.2 (with proof deferred to ??) demonstrates that excessively small
inventory worsens the approximation ratio. Therefore, the bound of C = 1 is optimal.
For a comparison of upper and lower bounds in terms of C, refer to Table 2.
For any C ∈ Z>0 , no online policy with inventory capacity C is greater than a C/(C+1)-approximation
of the optimal online (unbounded inventory) policy.

Inventory size C
1 2 3 4 5
Lower bound (algorithm) 1/2 0.615 0.647 0.655 0.656
Upper bound (impossibility) 1/2 2/3 3/4 4/5 5/6
Table 2: Lower and upper bounds on the approximation factor of the policy from Section 1.1 relative
to the optimal online policy when the seller has inventory capacity C.

10
3.2 Multi-good problem

In this section, we will examine how Algorithm 1 works in a scenario with multiple goods. To better
understand this analysis, we will first define some key terms.
A buyer of type j ∈ B is said to have reached good i ∈ G if they have not yet purchased an item
and are considering purchasing good i on Line 2 of Algorithm 1. We denote this event as Rij . The
availability of good i is represented by Ai .
We also say that the seller permits the sale of an item of good i to a buyer of type j if the probabilistic
check on Line 4 would pass. This decision is independent of the buyer’s purchase history or the
availability of the good. We denote this event as Pij ∼ Ber(pij ). It is important to note that the seller
permits the sale of an item of good i independently of the availability of any other goods. According
to Algorithm 1, a buyer of type j can purchase an item of good i if they reach it, the seller allows
the sale of the item, and at least one unit of the item is available. This implies that sC ij represents
the expected rate at which items of good i are sold to buyers of type j, given the inventory capacity
C ∈ Z>0 of the seller.
Using the PASTA (Poisson Arrivals See Time Averages) property, we can assert that the rate at which
buyers of type j purchase items of good i is equal to sC
ij , which is independent of the buyer’s arrival
process.

PC [Rij ∧ Ai ≥ 1] ∗
sC
ij = γj · PC [Rij ∧ Ai ≥ 1 ∧ Pij ] = α · · xij . (13)
wi
In the multi-good problem, lower bounding sC ij is more challenging compared to the single good
scenario due to correlations between the availability of goods. ? addressed this by using Poisson
processes and stochastic dominance relations. However, our approach also utilizes queuing theory
techniques to analyze stationary distributions of CTMCs, along with introducing a stochastic dom-
inance relation. To obtain a lower bound for PC [Rij ∧ Ai ≥ 1], we introduce new notation. We
define R̃ij as the event that a buyer of type j is not allowed to buy a good i′ ∈ G that precedes i in
the ordering, irrespective of its availability. On the other hand, Ãi is the number of items of good i
available when i comes first in the ordering. We provide a bound for the probability that a buyer of
type j reaches good i and it is available in terms of R̃ij and Ãi in the subsequent claim.
For any good i ∈ G and buyer type j ∈ B,
h i h i
PC [Rij ∧ Ai ≥ 1] ≥ PC R̃ij · PC Ãi ≥ 1 . (14)

For each item of good i in the set G, using Algorithm 1 increases the chances of selling it to a potential
buyer. This creates a downward pressure on the number of items available in the market for that good.
It’s easy to see that the stochastic dynamics under Algorithm 1 are dominant compared to the
dynamics under a new process. Therefore, to estimate the probability of a buyer reaching a good
and finding an available item under Algorithm 1, we can consider the same probability under the
dominated process.
We can independently consider two events related to the dominated process: R̃ij and Ãi ≥ 1. By
construction, these events are independent under the new process. Thus, we can lower bound the
probability of each event separately.
h i
In the following lemma, we can easily lower bound PC R̃ij by relying solely on the presence of
goods rather than their availability. This characterization can be determined precisely by utilizing the
upper bound of Pr-available-lower-upper-bounds.
llina:lemPrJReachesI For any good i ∈ G and buyer type j ∈ B, we have that
h i α
PC R̃ij ≥ 1 − .
2

11
4 Mechanism design implications

Our posted-price mechanism is a reliable approach for approximating the optimal social welfare and
revenue of any mechanism for the single-good problem in the mechanism design setting. In this
setup, buyers arrive with their true value vj for the good, drawn from a known distribution D, but
may misreport their value.
To implement our mechanism, we set a price-probability pair (v̄, p̄), and when a buyer arrives and
observes an available item, they bid b. If the reported bid is strictly higher than v̄, we sell the item
to the buyer at the price v̄. If the bid is equal to v̄, we sell the item to the buyer with probability p̄;
otherwise, no item is sold. The utility of a buyer with true valuation vj is vj − v̄.
Our mechanism is weakly DSIC (dominant-strategy incentive compatible) and individually rational,
meaning that buyers have no incentive to lie about their valuations, and they do not lose anything
from entering the market. The social welfare, which is the sum of buyer utility and seller revenue, is
equivalent to the gain, vj = (vj − v̄) + v̄. Therefore, our posted-price policies provide weakly DSIC
and individually rational mechanisms that match our policies’ approximation ratios.
In summary, our posted-price mechanism is an effective approach for designing truthful mechanisms
that approximate the optimal social welfare and revenue in the mechanism design setting for the
single-good problem.

5 Key Ideas for Paper to Extend Non-Trivially

One potential direction for enhancement could be to explore the impact of different distribution
assumptions for buyers’ valuations on the performance of the mechanism. The current text assumes a
known distribution D, but in practice, the distribution may not be known with certainty. Investigating
the robustness of the mechanism to different distributional assumptions could provide insights into its
practical applicability.
Additionally, the text mentions that the posted-price mechanism is weakly DSIC and individually
rational. An interesting direction for future research could be to investigate whether the mechanism
can be made strongly DSIC, meaning that truthful reporting is a strict dominant strategy for all buyers.
Finally, a creative new direction could be to investigate the use of machine learning techniques to
design more sophisticated mechanisms for the single-good problem. For example, neural networks
could be used to learn the optimal price and probability pair based on historical data from previous
auctions. This approach could potentially improve upon the approximation ratios achieved by the
posted-price mechanism while maintaining truthful reporting incentives for buyers.
Another possible direction for extending the posted-price mechanism is to investigate its performance
when the arrival of items and buyers follows a distribution other than a Poisson process. While the
Poisson process is commonly used to model arrival rates, it may not always accurately reflect the
underlying dynamics of a particular market.
For instance, in some markets, the arrival of items and buyers may exhibit seasonal or periodic
patterns, such as a higher demand for certain goods during certain times of the year. In such cases, a
mechanism that is designed to perform well under Poisson assumptions may not be optimal.
By investigating the performance of the posted-price mechanism under different arrival rate distri-
butions, researchers can gain insights into how well the mechanism can adapt to different market
conditions. This could involve exploring the use of alternative arrival rate models, such as autore-
gressive models or seasonal models, and evaluating how well the mechanism performs under these
models.

12
Furthermore, it may also be worthwhile to investigate the performance of the mechanism when
buyers’ valuations are drawn from distributions other than the one assumed in the current text. For
example, in some markets, the distribution of buyers’ valuations may be skewed or exhibit heavy
tails. Understanding how the mechanism performs under these conditions could help to inform the
design of more robust and adaptable mechanisms.

6 Key References
• Aouad, A. and Saritac¸, O. ¨ 2020. Dynamic stochastic matching under limited time. In
Proceedings of the 21st ACM Conference on Economics and Computation (EC). 789–790
• Bolch, G., Greiner, S., De Meer, H., and Trivedi, K. S. 2006. Queueing networks and
Markov chains: modeling and performance evaluation with computer science applications.
John Wiley Sons.
• Collina, N., Immorlica, N., Leyton-Brown, K., Lucier, B., and Newman, N. 2020. Dynamic
weighted matching with heterogeneous arrival and departure rates. In Proceedings of the
16th Conference on Web and Internet Economics (WINE). 17–30
• Krengel, U. and Sucheston, L. 1977. Semiamarts and finite values. Bulletin of the American
Mathematical Society 83, 4, 745–747
• Krengel, U. and Sucheston, L. 1978. On semiamarts, amarts, and processes with finite value.
Advances in Probability and Related Topics 4, 197–266
• Myerson, R. B. 1981. Optimal auction design. Mathematics of operations research 6, 1,
58–73.
• Niazadeh, R., Saberi, A., and Shameli, A. 2018. Prophet inequalities vs. approximating
optimum online. In Proceedings of the 14th Conference on Web and Internet Economics
(WINE), G. Christodoulou and T. Harks, Eds. 356–374.
• Wolff, R. W. 1982. Poisson arrivals see time averages. Operations Research 30, 2, 223–231.
• Samuel-Cahn, E. 1984. Comparison of threshold stop rules and maximum for independent
nonnegative random variables. The Annals of Probability 12, 4, 1213 – 1216.
• Hartline, J. D. et al. 2013. Bayesian mechanism design. Foundations and Trends® in
Theoretical Computer Science 8, 3, 143–263
• Feldman, M., Gravin, N., and Lucier, B. 2014. Combinatorial auctions via posted prices. In
Proceedings of the 26th Annual ACM-SIAM Symposium on Discrete Algorithms (SODA).
123–135.
• Dynkin, E. B. 1963. The optimum choice of the instant for stopping a markov process.
Soviet Mathematics 4, 627–629.
• Dutting, P. ¨ , Feldman, M., Kesselheim, T., and Lucier, B. 2020. Prophet inequalities made
easy: Stochastic optimization by pricing nonstochastic inputs. SIAM Journal on Computing
(SICOMP) 49, 3, 540–582.
• Correa, J., Foncea, P., Pizarro, D., and Verdugo, V. 2019b. From pricing to prophets, and
back! Operations Research Letters 47, 1, 25–29.
• Correa, J., Foncea, P., Hoeksma, R., Oosterwijk, T., and Vredeveld, T. 2019a. Recent
developments in prophet inequalities. ACM SIGecom Exchanges 17, 1, 61–70.
• Hajiaghayi, M. T., Kleinberg, R., and Sandholm, T. 2007. Automated online mechanism
design and prophet inequalities. In Proceedings of the 22nd AAAI Conference on Artificial
Intelligence (AAAI). 58–65.
• Ezra, T., Feldman, M., Gravin, N., and Tang, Z. G. 2020. Online stochastic max-weight
matching: prophet inequality for vertex and edge arrival models. In Proceedings of the 21st
ACM Conference on Economics and Computation (EC). 769–787

13
• Gravin, N. and Wang, H. 2019. Prophet inequality for bipartite matching: Merits of being
simple and non adaptive. In Proceedings of the 20th ACM Conference on Economics and
Computation (EC). 93–109.
• Kleinberg, R. and Weinberg, S. M. 2019. Matroid prophet inequalities and applications to
multi-dimensional mechanism design. Games and Economic Behavior 113, 97–115.
• Lucier, B. 2017. An economic view of prophet inequalities. ACM SIGecom Exchanges 16,
1, 24–47.

14