Hierarchical Auction Mechanisms for Network Resource Allocation

Motivated by allocation of bandwidth, wireless spectrum and cloud computing services in secondary network markets, we introduce a hierarchical auction model for network resource allocation. A Tier 1 provider owns a homogeneous network resource and holds an auction to allocate this resource among Tier 2 operators, who in turn allocate the acquired resource among Tier 3 entities. The Tier 2 operators play the role of middlemen, since their utilities for the resource depend on the revenues gained from resale. We first consider static hierarchical auction mechanisms for indivisible resources. We study a class of mechanisms wherein each sub-mechanism is either a first-price or VCG auction, and show that incentive compatibility and efficiency cannot be simultaneously achieved. We also briefly discuss sequential auctions as well as the incomplete information setting. We then propose two VCG-type hierarchical mechanisms for divisible resources. The first one is composed of single-sided auctions at each tier, while the second one employs double-sided auctions at all tiers except Tier 1. Both mechanisms induce an efficient Nash equilibrium.