Market Design for Capacity Sharing in Networks

TL;DR

This paper proposes a market mechanism for network capacity sharing that incentivizes strategic agents to efficiently allocate resources, establishing conditions for equilibrium existence and computation, and extending to complex, multi-period networks.

Contribution

It introduces a novel combinatorial auction and network flow-based approach to ensure equilibrium existence and computation in capacity sharing markets, including extensions to multi-period and general networks.

Findings

Sufficient conditions guarantee polynomial-time equilibrium computation.

A market equilibrium aligns with the Vickrey-Clarke-Groves mechanism.

Equilibrium can exist with complex, differentiated pricing mechanisms.

Abstract

We study a market mechanism that sets edge prices to incentivize strategic agents to efficiently share limited network capacity. In this market, agents form coalitions, with each coalition sharing a unit capacity of a selected route and making payments to cover edge prices. Our focus is on the existence and computation of market equilibrium, where challenges arise from the interdependence between coalition formation among strategic agents with heterogeneous preferences and route selection that induces a network flow under integral capacity constraints. To address this interplay between coalition formation and network capacity utilization, we introduce a novel approach based on combinatorial auction theory and network flow theory. We establish sufficient conditions on the network topology and agents' preferences that guarantee both the existence and polynomial-time computation of a market equilibrium. Additionally, we identify a particular market equilibrium that maximizes utilities for all agents and the outcome is equivalent to the classical Vickrey-Clarke-Groves mechanism. Furthermore, we extend our results to multi-period settings and general networks, showing that when the sufficient conditions are not met, an equilibrium may still exist but requires more complex, path-based pricing mechanisms that set differentiated prices based on agents' preference parameters.