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.
Bibliographical noteFunding Information:
The authors would like to thank the editor and the anonymous referees for their very helpful comments. This research was conducted when the first two authors were students at the School of Engineering and Computer Science, The Hebrew University, Jerusalem, Israel. It was supported by grants from the Israeli Ministry of Science, the Israeli Academy of Sciences and the USA–Israel Bi-national Science Foundation. The first author (Babaioff) was also supported by Yeshaya Horowitz Association and by a National Science Foundation grant number ANI-0331659. The third author (Pavlov) was also supported the Evergrow project of the EU and part of the work was done while on a visit to the Exystence Institute.
- Mechanism design
- Spatially distributed market
- Vickrey-Clarke-Groves mechanism