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arXiv · 2502.13334

How to sell a service with uncertain outcomes

Krishnamurthy Iyer·Alec Sun·Haifeng Xu·You Zu
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Abstract

Motivated by the recent popularity of machine learning training services, we introduce a contract design problem in which a provider sells a service that results in an outcome of uncertain quality for the buyer. The seller has a set of actions that lead to different distributions over outcomes. We focus on a setting in which the seller has the ability to commit to an action and the buyer is free to accept or reject the outcome after seeing its realized quality. We propose a two-stage payment scheme where the seller designs a menu of contracts, each of which specifies an action, an upfront price and a vector of outcome-dependent usage prices. Upon selecting a contract, the buyer pays the upfront price, and after observing the realized outcome, the buyer either accepts and pays the corresponding usage price, or rejects and is exempt from further payment. We show that this two-stage payment structure is necessary to maximize profit: only upfront price or only usage prices is insufficient. We then study the computational complexity of computing a profit-maximizing menu. While computing the optimal profit is NP-hard even for two buyer types, we derive a fully-polynomial time approximation scheme (FPTAS) for the optimal profit for a constant number of buyer types. Finally, we prove that in the single-parameter setting in which buyers' valuations are parametrized by a single real number, there exists a revenue-optimal menu consisting of a single contract.

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BibTeXRIS

Krishnamurthy Iyer, Alec Sun, Haifeng Xu, You Zu. 2025-02-18. How to sell a service with uncertain outcomes. https://doi.org/10.1145/3736252.3742633

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