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Mechanisms for a spatially distributed market

Moshe Babaioff, Noam Nisan and Elan Pavlov

Games and Economic Behavior, 2009, vol. 66, issue 2, 660-684

Abstract: We consider the problem of a spatially distributed market with strategic agents. A single good is traded in a set of independent markets, where shipment between markets is possible but costly. The problem has previously been studied in the non-strategic case, in which it can be analyzed and solved as a min-cost-flow problem. We consider the case where buyers and sellers are strategic. Our first result gives a double characterization of the VCG prices, first as distances in a certain residue graph and second as the minimal (for buyers) and maximal (for sellers) equilibrium prices. This provides a computationally efficient, individually rational and incentive compatible welfare maximizing mechanism. This mechanism is, necessarily, not budget balanced and we also provide a budget-balanced mechanism (which is also computationally efficient, incentive compatible and individually rational) that achieves high welfare. Finally, we present results for some extensions of the model.

Keywords: Mechanism; design; Spatially; distributed; market; Auctions; Vickrey-Clarke-Groves; mechanism (search for similar items in EconPapers)
Date: 2009
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Handle: RePEc:eee:gamebe:v:66:y:2009:i:2:p:660-684