On the Efficiency of Markets with Two-Sided Proportional Allocation Mechanisms

We analyze the performance of single-parameter mechanisms for markets in which there is competition amongst both consumers and suppliers (namely, two-sided markets). Specifically, we examine the proportional allocation mechanism for two-sided markets. This mechanism is the natural generalization of both Kelly's proportional allocation mechanism for demand-competitive markets [8] and Johari and Tsitsiklis' proportional allocation mechanism for supply-competitive markets [7]. First we consider the case of a market for one divisible resource, for example bandwidth on a single-link network. Under the standard assumptions of decreasing marginal valuations for buyers and increasing marginal costs for suppliers, we show that a Nash equilibrium always exists for the proportional allocation mechanism, provided there are at least two suppliers. The effectiveness of the mechanism in achieving high social welfare is dependent upon the curvature of the suppliers marginal cost functions. W...

• Type: Journal
• Year: 2010
• Where: SAGT
• Authors: Volodymyr Kuleshov, Adrian Vetta
• Keywords: Game Theory, Marginal Cost, Proportional Allocation Mechanism, SAGT 2010, Welfare Ratio