Design of an Aggregated Marketplace Under Congestion Effects: Asymptotic Analysis and Equilibrium Characterization

57 Pages Posted: 30 Aug 2011

See all articles by Ying-Ju Chen

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management

Costis Maglaras

Columbia Business School - Decision Risk and Operations

Gustavo Vulcano

Universidad Torcuato Di Tella - School of Business

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Date Written: July 28, 2008

Abstract

We study an aggregated marketplace where potential buyers arrive and submit requests-for-quotes (RFQs). There are n independent suppliers modelled as M=GI=1 queues that compete for these requests. Each supplier submits a bid that comprises of a fixed price and a dynamic target leadtime, and the cheapest supplier wins the order as long as the quote meets the buyer’s willingness to pay. We characterize the asymptotic performance of this system, and subsequently extract insights about the equilibrium behavior of the suppliers and the efficiency of this market. We show that supplier competition results into a mixed-strategy equilibrium phenomenon and is significantly different from the centralized solution. We propose a compensation-while-idling mechanism that coordinates the system: each supplier gets monetary compensation from other suppliers during his idle periods. This mechanism alters suppliers’ objectives and implements the centralized solution at their own will.

Keywords: aggregated marketplace, service competition, asymptotic analysis

Suggested Citation

Chen, Ying-Ju and Maglaras, Costis and Vulcano, Gustavo, Design of an Aggregated Marketplace Under Congestion Effects: Asymptotic Analysis and Equilibrium Characterization (July 28, 2008). Columbia Business School Research Paper . Available at SSRN: https://ssrn.com/abstract=1919161 or http://dx.doi.org/10.2139/ssrn.1919161

Ying-Ju Chen

Hong Kong University of Science & Technology (HKUST) - Department of Information Systems, Business Statistics and Operations Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Costis Maglaras (Contact Author)

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

Gustavo Vulcano

Universidad Torcuato Di Tella - School of Business ( email )

Avda Figueroa Alcorta 7350
Buenos Aires, CABA 1428
Argentina

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