Decentralized Supply Chain Formation: A Market Protocol and Competitive Equilibrium Analysis

Supply chain formation is the process of determining the structure and terms of exchange relationships to enable a multilevel, multiagent production activity. We present a simple model of supply chains, highlighting two characteristic features: hierarchical subtask decomposition, and resource contention. To decentralize the formation process, we introduce a market price system over the resources produced along the chain. In a competitive equilibrium for this system, agents choose locally optimal allocations with respect to prices, and outcomes are optimal overall. To determine prices, we define a market protocol based on distributed, progressive auctions, and myopic, non-strategic agent bidding policies. In the presence of resource contention, this protocol produces better solutions than the greedy protocols common in the artificial intelligence and multiagent systems literature. The protocol often converges to high-value supply chains, and when competitive equilibria exist, typically to approximate competitive equilibria. However, complementarities in agent production technologies can cause the protocol to wastefully allocate inputs to agents that do not produce their outputs. A subsequent decommitment phase recovers a significant fraction of the lost surplus.

[1]  R. McAfee,et al.  Auctions and Bidding , 1986 .

[2]  Robert Axelrod,et al.  The Evolution of Strategies in the Iterated Prisoner's Dilemma , 2001 .

[3]  Moshe Babaioff,et al.  Concurrent auctions across the supply chain , 2001, EC '01.

[4]  D. Gale,et al.  The Strategy Structure of Two Sided Matching Markets , 1985 .

[5]  Randall Davis,et al.  Negotiation as a Metaphor for Distributed Problem Solving , 1988, Artif. Intell..

[6]  William Vickrey,et al.  Counterspeculation, Auctions, And Competitive Sealed Tenders , 1961 .

[7]  Faruk Gul,et al.  WALRASIAN EQUILIBRIUM WITH GROSS SUBSTITUTES , 1999 .

[8]  Amy Greenwald The 2002 Trading Agent Competition: An Overview of Agent Strategies , 2003, AI Mag..

[9]  Peter Stone,et al.  The First International Trading Agent Competition: Autonomous Bidding Agents , 2005, Electron. Commer. Res..

[10]  S. Clearwater Market-based control: a paradigm for distributed resource allocation , 1996 .

[11]  David C. Parkes,et al.  An Ascending-Price Generalized Vickrey Auction , 2002 .

[12]  Michael P. Wellman,et al.  Efficiency and Equilibrium in Task Allocation Economies with Hierarchical Dependencies , 1999, IJCAI.

[13]  P. Klemperer Auction Theory: A Guide to the Literature , 1999 .

[14]  W. H. Davidow,et al.  The Virtual Corporation: Structuring and Revitalizing the Corporation for the 21st Century , 1992 .

[15]  M. Bichler The Future of e-Markets: Multidimensional Market Mechanisms , 2001 .

[16]  Jeffrey S. Rosenschein and Gilad Zlotkin Rules of Encounter , 1994 .

[17]  Michael P. Wellman,et al.  A Parametrization of the Auction Design Space , 2001, Games Econ. Behav..

[18]  Makoto Yokoo,et al.  On Market-Inspired Approaches to Propositional Satisfiability , 2001, IJCAI.

[19]  Sushil Bikhchandani,et al.  The Package Assignment Model , 2002, J. Econ. Theory.

[20]  Jeffrey K. MacKie-Mason,et al.  Generalized Vickrey Auctions , 1994 .

[21]  D. Gale,et al.  Multi-Item Auctions , 1986, Journal of Political Economy.

[22]  V. Crawford,et al.  Job Matching, Coalition Formation, and Gross Substitutes , 1982 .

[23]  Subhash Suri,et al.  Improved Algorithms for Optimal Winner Determination in Combinatorial Auctions and Generalizations , 2000, AAAI/IAAI.

[24]  E. H. Clarke Multipart pricing of public goods , 1971 .

[25]  Yoav Shoham,et al.  Towards a universal test suite for combinatorial auction algorithms , 2000, EC '00.

[26]  Steven R. Williams,et al.  Bilateral trade with the sealed bid k-double auction: Existence and efficiency , 1989 .

[27]  Ennio Stacchetti,et al.  The English Auction with Differentiated Commodities , 2000, J. Econ. Theory.

[28]  Michael P. Wellman,et al.  The 2001 trading agent competition , 2002, Electron. Mark..

[29]  Michael P. Wellman,et al.  Distributed quiescence detection in multiagent negotiation , 2000, Proceedings Fourth International Conference on MultiAgent Systems.

[30]  Mark A. Satterthwaite,et al.  The Bayesian theory of the k-double auction: Santa Fe Institute Studies in the Sciences of Complexity , 2018 .

[31]  M. Satterthwaite,et al.  Efficient Mechanisms for Bilateral Trading , 1983 .

[32]  Amy Greenwald,et al.  The 2002 Trading Agent Competition : An Overview of Agent Designs , 2003 .

[33]  Lawrence M. Ausubel,et al.  Ascending Auctions with Package Bidding , 2002 .

[34]  J. Gebauer,et al.  Business-to-business electronic commerce , 2003, 36th Annual Hawaii International Conference on System Sciences, 2003. Proceedings of the.

[35]  Luke Hunsberger,et al.  A combinatorial auction for collaborative planning , 2000, Proceedings Fourth International Conference on MultiAgent Systems.

[36]  A. D. Baker Metaphor or reality: a case study where agents BID with actual costs to schedule a factory , 1996 .

[37]  Theodore Groves,et al.  Incentives in Teams , 1973 .

[38]  Michael P. Wellman,et al.  Auction Protocols for Decentralized Scheduling , 2001, Games Econ. Behav..

[39]  Dale A. Stirling,et al.  Information rules , 2003, SGMD.

[40]  Paul R. Milgrom,et al.  Putting Auction Theory to Work: The Simultaneous Ascending Auction , 1999, Journal of Political Economy.

[41]  D. H. Bartley,et al.  The implementation of , 1986 .

[42]  Fredrik Ygge,et al.  Market-Oriented Programming and its Application to Power Load Management , 1998 .

[43]  Daniel F. Spulber,et al.  Business-to-Business Electronic Commerce , 2001 .

[44]  Shou-De Lin,et al.  Designing the Market Game for a Trading Agent Competition , 2001, IEEE Internet Comput..

[45]  Garth Saloner,et al.  Economics and Electronic Commerce , 2001 .

[46]  S. Bikhchandani,et al.  Competitive Equilibrium in an Exchange Economy with Indivisibilities , 1997 .

[47]  Mark Klein,et al.  An exception-handling architecture for open electronic marketplaces of contract net software agents , 2000, EC '00.

[48]  David C. Parkes,et al.  Achieving Budget-Balance with Vickrey-Based Payment Schemes in Exchanges , 2001, IJCAI.

[49]  Thomas W. Malone,et al.  The Dawn of the E-Lance Economy , 1998, Wirtschaftsinformatik.

[50]  R. McAfee,et al.  A dominant strategy double auction , 1992 .

[51]  Tuomas Sandholm,et al.  An Implementation of the Contract Net Protocol Based on Marginal Cost Calculations , 1993, AAAI.

[52]  Michael P. Wellman,et al.  Flexible double auctions for electronic commerce: theory and implementation , 1998, Decis. Support Syst..

[53]  Moshe Babaioff,et al.  Incentive-compatible, budget-balanced, yet highly efficient auctions for supply chain formation , 2003, EC '03.

[54]  Arne Andersson,et al.  Integer programming for combinatorial auction winner determination , 2000, Proceedings Fourth International Conference on MultiAgent Systems.

[55]  Michael P. Wellman,et al.  Market protocols for decentralized supply chain formation , 2001 .

[56]  Michael P. Wellman,et al.  AkBA: a progressive, anonymous-price combinatorial auction , 2000, EC '00.

[57]  David C. Parkes,et al.  Iterative Combinatorial Auctions: Theory and Practice , 2000, AAAI/IAAI.

[58]  R. Palmer,et al.  Characterizing effective trading strategies: Insights from a computerized double auction tournament , 1994 .

[59]  Martin Andersson,et al.  Leveled commitment contracting among myopic individually rational agents , 1998, Proceedings International Conference on Multi Agent Systems (Cat. No.98EX160).

[60]  Ronald Fagin,et al.  Reasoning about knowledge , 1995 .

[61]  M. Bichler The Future of Emarkets: Multi-Dimensional Market Mechanisms , 2001 .

[62]  Michael P. Wellman,et al.  Combinatorial auctions for supply chain formation , 2000, EC '00.

[63]  A. Mas-Colell,et al.  Microeconomic Theory , 1995 .