Decentralized Supply Chain Formation: A Market Protocol and Competitive Equilibrium Analysis

TL;DR

This paper proposes a decentralized market protocol for supply chain formation that uses distributed auctions and competitive equilibrium analysis, improving allocation efficiency in multiagent production systems.

Contribution

It introduces a novel market-based protocol with distributed auctions for supply chain formation, addressing resource contention and achieving near-optimal outcomes.

Findings

Protocol often converges to high-value supply chains

Better solutions than greedy protocols in resource contention scenarios

Decommitment phase recovers surplus lost due to complementarities

Abstract

Supply chain formation is the process of determining the structure and terms of exchange relationships to enable a multilevel, multiagent production activity. We present a simple model of supply chains, highlighting two characteristic features: hierarchical subtask decomposition, and resource contention. To decentralize the formation process, we introduce a market price system over the resources produced along the chain. In a competitive equilibrium for this system, agents choose locally optimal allocations with respect to prices, and outcomes are optimal overall. To determine prices, we define a market protocol based on distributed, progressive auctions, and myopic, non-strategic agent bidding policies. In the presence of resource contention, this protocol produces better solutions than the greedy protocols common in the artificial intelligence and multiagent systems literature. The protocol often converges to high-value supply chains, and when competitive equilibria exist, typically to approximate competitive equilibria. However, complementarities in agent production technologies can cause the protocol to wastefully allocate inputs to agents that do not produce their outputs. A subsequent decommitment phase recovers a significant fraction of the lost surplus.