Hierarchical Auctions for Network Resource Allocation

Motivated by allocation of cloud computing services, bandwidth and wireless spectrum in secondary network markets, we introduce a hierarchical auction model for network resource allocation. The Tier 1 provider owns all of the resource, who holds an auction in which the Tier 2 providers participate. Each of the Tier 2 providers then holds an auction to allocate the acquired resource among the Tier 3 users. The Tier 2 providers play the role of middlemen, since their utility for the resource depends entirely on the payment that they receive by selling it. We first consider the case of indivisible resource. We study a class of mechanisms where each sub-mechanism is either a first-price or a second-price auction, and show that incentive compatibility and efficiency cannot be simultaneously achieved. We then consider the resource to be divisible and propose the hierarchical network second-price mechanism in which there exists an efficient Nash equilibrium with endogenous strong budget balance.