GAME-THEORETIC ANALYSIS OF PAY-AS-BID MECHANISMS

Abstract

Enterprises are facing a challenging dilemma. In order to be able to accommodate peak loads on their

IT systems, they must maintain large computing clusters, which lie idle most of the time. At the same

time, IT departments are under constant pressure to cut down on hard- and software expenses. Grid

technology offers a promising way out of this dilemma by allowing the dynamic sharing both within

enterprises as well as across organizational boundaries. This sharing approach, however, requires

proper economic incentives. This paper is concerned with the determination of dynamic market-based

prices. Due to their simplicity, so-called pay-as-bid mechanisms have become popular. This paper is

novel as we provide an in-depth analysis of two such pay-as-bid mechanisms – Proportional Share

and a discriminatory pay-as-bid mechanism – for the case of three users, thus extending previous

work by Sanghavi and Hajek (2004) and Stößer et al. (2008). This analysis is important as we show

that the nice results for two users cannot be retained once three or more users are present. Even

worse, we show that these results can even be reversed if we move to games with more than two

players

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