An efficient auction mechanism for hierarchically structured bandwidth markets

Abstract

In this paper, we formulate a new problem, namely allocation of bandwidth in a two-level hierarchically structured market. In the top level a unique seller allocates bandwidth to intermediate providers [e.g. Internet Service Providers (ISPs)], who in turn allocate their assigned shares of bandwidth to their own customers in the lower level. We present an efficient mechanism comprising auctions in both levels. We prove that, due to the structure of the mechanism and certain rules imposed by the top-level seller, the following dominant strategies apply: a) each of the lower-level customers reveals truthfully his demand in the auction he participates; b) each intermediary reveals truthfully to the top-level seller the aggregate demand in his respective market. Both the mechanism and the results extend to the case of more than two market levels. © Springer-Verlag Berlin Heidelberg 2004.