Incentive Mechanisms for Hierarchical Spectrum Markets

TL;DR

This paper analyzes hierarchical spectrum markets and proposes an incentive mechanism with a novel auction scheme to improve social welfare by aligning the strategies of market entities.

Contribution

It introduces a pricing-based incentive mechanism and a novel auction scheme to enhance efficiency in hierarchical spectrum markets.

Findings

Hierarchical markets lack social efficiency without coordination.

The proposed incentive mechanism aligns POs' strategies with social welfare.

System performance improves with the new auction-based regulation scheme.

Abstract

In this paper, we study spectrum allocation mechanisms in hierarchical multi-layer markets which are expected to proliferate in the near future based on the current spectrum policy reform proposals. We consider a setting where a state agency sells spectrum channels to Primary Operators (POs) who subsequently resell them to Secondary Operators (SOs) through auctions. We show that these hierarchical markets do not result in a socially efficient spectrum allocation which is aimed by the agency, due to lack of coordination among the entities in different layers and the inherently selfish revenue-maximizing strategy of POs. In order to reconcile these opposing objectives, we propose an incentive mechanism which aligns the strategy and the actions of the POs with the objective of the agency, and thus leads to system performance improvement in terms of social welfare. This pricing-based scheme constitutes a method for hierarchical market regulation. A basic component of the proposed incentive mechanism is a novel auction scheme which enables POs to allocate their spectrum by balancing their derived revenue and the welfare of the SOs.