Design and Analysis of the Progressive Second Price Auction for Network Bandwidth Sharing

Aurel A. Lazar · Nemo Semret

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Auction Theory and Applications Game Theory and Voting Systems Game Theory and Applications

Abstract

We present the Progressive Second Price auction, a new decentralized mechanism for allocation of variable-size shares of a resource among multiple users. Unlike most mechanisms in the economics litterature, PSP is designed with a very small message space, making it suitable for real-time market pricing of communication bandwidth. Under elastic demand, the PSP auction is incentive compatible and stable, in that it has a "truthful" epsilon-Nash equilibrium where all players bid at prices equal to their marginal valuation of the resource. PSP is economically efficient in that the equilibrium allocation maximizes total user value. With simulations using a protype implementation of the auction game on the Internet, weinvestigate how convergence times scale with the number of bidders, as well as the trade-off between engineering and economic efficiency. We also provide a rate-distortion theoretic basis for...

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1961COUNTERSPECULATION, AUCTIONS, AND COMPETITIVE SEALED TENDERS 1981Optimal Auction Design 1973Incentives in Teams 1971Multipart pricing of public goods 1993Rational Learning Leads to Nash Equilibrium 1993Competitive routing in multiuser communication networks 1988Multidimensional incentive compatibility and mechanism design 1995Architecting noncooperative networks

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2004Multi-bid auctions for bandwidth allocation in communication networks 2004Efficiency loss in market mechanisms for resource allocation 2002Combinatorial auctions using rule-based bids 2006Pricing the Internet With Multibid Auctions 2012Hierarchical Auction Mechanisms for Network Resource Allocation 2002Revisited Progressive Second Price Auction for Charging Telecommunication Networks 2007

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