Revenue and Stability of a Mechanism for Efficient Allocation of a Divisible Good

A class of efficient mechanisms for allocating a divisible good is studied, which is more general than simple mechanisms discovered independently by Maheswaran and Başar and by us. Strategic buyers play a game by submitting one-dimensional bids, or signals, to the seller. The seller allocates the good in proportion to the bids and charges the buyers nonuniform prices according to the mechanism. Under some mild conditions on the valuation functions of the buyers, there is a unique Nash equilibrium point (NEP) and the allocation at the NEP is efficient. The prices charged to the buyers at the NEP are bounded above by, and can be made arbitrarily close to, the uniform market clearing price for price-taking buyers. The efficient NEP is globally stable. The work is motivated by the problem of rate allocation on the links of a communication network.

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