A progressive second price mechanism with a sanction bid from excluded players

Abstract

In the large number of papers published on pricing schemes for telecommunication networks in the past few years, auctionning for bandwidth has been proved to be one of the main streams. We deal here with a method called Progressive Second Price (PSP) Auction, that we point out to have two drawbacks: first, the initial bidder has no interest in giving his true valuation of the bandwidth, and second, switching the order of bid between players can provide different Nash equilibria resulting in different seller revenues. We then design an adaptation of PSP allowing to solve these problems by asking to the players excluded from the game to submit a specific bid, which acts as a sanction on the other players. © Springer-Verlag Berlin Heidelberg 2003.