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Efficiency of Scalar-Parameterized Mechanisms

Department of Management Science and Engineering, Stanford University, Stanford, California 94305
Laboratory for Information and Decision Systems, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
ramesh.johari{at}stanford.edu
jnt{at}mit.edu

We consider the problem of allocating a fixed amount of an infinitely divisible resource among multiple competing, fully rational users. We study the efficiency guarantees that are possible when we restrict to mechanisms that satisfy certain scalability constraints motivated by large-scale communication networks; in particular, we restrict attention to mechanisms where users are restricted to one-dimensional strategy spaces. We first study the efficiency guarantees possible when the mechanism is not allowed to price differentiate. We study the worst-case efficiency loss (ratio of the utility associated with a Nash equilibrium to the maximum possible utility), and show that Kelly's proportional allocation mechanism minimizes the efficiency loss when users are price anticipating. We then turn our attention to mechanisms where price differentiation is permitted; using an adaptation of the Vickrey-Clarke-Groves class of mechanisms, we construct a class of mechanisms with one-dimensional strategy spaces where Nash equilibria are fully efficient. These mechanisms are shown to be fully efficient even in general convex environments, under reasonable assumptions. Our results highlight a fundamental insight in mechanism design: when the pricing flexibility available to the mechanism designer is limited, restricting the strategic flexibility of bidders may actually improve the efficiency guarantee.

Subject classifications: game/group decisions; noncooperative; bidding/auctions; networks/graphs; theory; utility/preference; theory.
History: Received January 2007; revision received June 2008; accepted July 2008.