Mediators in position auctions

A mediator is a reliable entity which plays on behalf of the players who give her the right to play. The mediator acts in a pre-specified way based on messages received from the players. However, a mediator cannot enforce behavior; that is, players call play in the game directly without the mediator's help. A mediator generates a new game for the players, the mediated game. The outcome in the original game of an equilibrium in the mediated game is called a mediated equilibrium. Monderer and Tennenholtz introduced a theory of mediators for games with complete information. We extend the theory of mediators to games with incomplete information, and apply the new theory to position auctions, a central topic in electronic commerce. We provide a minimal set of conditions on position auctions, which is sufficient to guarantee that the VCG outcome function is a mediated equilibrium in these auctions. (C) 2008 Elsevier Inc. All rights reserved.