Design and Analysis of the Progressive Second Price Auction for Network Bandwidth Sharing

We present the Progressive Second Price auction, a new decentralized mechanism for allocation of variable-size shares of a resource among multiple users. Unlike most mechanisms in the economics litterature, PSP is designed with a very small message space, making it suitable for real-time market pricing of communication bandwidth. Under elastic demand, the PSP auction is incentive compatible and stable, in that it has a \truthful" -Nash equilibrium where all players bid at prices equal to their marginal valuation of the resource. PSP is economically e cient in that the equilibrium allocation maximizes total user value. With simulations using a protype implementation of the auction game on the Internet, we investigate how convergence times scale with the number of bidders, as well as the trade-o between engineering and economic e ciency. We also provide a rate-distortion Parts of this work were presented at the 8 International Symposium on Dynamic Games and Applications, Maastricht, The Netherlands, July 1998, and at the DIMACS Workshop on Economics, Game Theory, and the Internet, Rutgers, NJ, April 1997. Corresponding author.