Advertisement

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

  • Ying-Ju Chen
  • Costis Maglaras
  • Gustavo Vulcano
Chapter
Part of the Springer Series in Supply Chain Management book series (SSSCM, volume 6)

Abstract

We study an aggregated marketplace where potential buyers arrive and submit requests-for-quotes (RFQs). There are n independent suppliers modeled as MGI∕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 as the demand and the supplier capacities grow large, and subsequently extract insights about the equilibrium behavior of the suppliers. We show that supplier competition results in a mixed-strategy equilibrium phenomenon that is significantly different from the centralized solution. In order to overcome the efficiency loss, 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.

References

  1. Afèche P (2013) Incentive-compatible revenue management in queueing systems: optimal strategic delay. Manuf Serv Oper Manag 15(3):423–443CrossRefGoogle Scholar
  2. Allon G, Federgruen A (2007) Competition in service industries. Oper Res 55(1):37–55CrossRefGoogle Scholar
  3. Allon G, Gurvich I (2010) Pricing and dimensioning competing large-scale service providers. Manuf Serv Oper Manag 12(3):449–469CrossRefGoogle Scholar
  4. Allon G, Bassamboo A, Cil EB (2012) Large-scale service marketplaces: the role of the moderating firm. Manag Sci 58(10):1854–1872CrossRefGoogle Scholar
  5. Ata B, Kumar S (2005) Heavy traffic analysis of open processing networks with complete resource pooling: asymptotic optimality of discrete review policies. Ann Appl Propab 1:331–391CrossRefGoogle Scholar
  6. Besbes O (2006) Revenue maximization for a queue that announces real-time delay information. Working paper, Graduate School of Business, Columbia UniversityGoogle Scholar
  7. Bramson M (1998) State space collapse with applications to heavy-traffic limits for multiclass queueing networks. Queueing Syst 30:89–148CrossRefGoogle Scholar
  8. Browne S, Whitt W (2003) Piecewise-linear diffusion processes. In: Advances in queueing. CRC Press, pp 463–480Google Scholar
  9. Chen YJ, Maglaras C, Vulcano G (2008) Design of an aggregated marketplace under congestion effects: asymptotic analysis and equilibrium characterization. Technical Report, Columbia UniversityGoogle Scholar
  10. DiPalantino D, Johari R, Weintraub GY (2011) Competition and contracting in service industries. Oper Res Lett 39(5):390–396CrossRefGoogle Scholar
  11. Gallego G, van Ryzin G (1994) Optimal dynamic pricing of inventories with stochastic demand over finite horizons. Manag Sci 40:999–1020CrossRefGoogle Scholar
  12. Lederer P, Li L (1997) Pricing, production, scheduling and delivery -time competition. Oper Res 45:407–420CrossRefGoogle Scholar
  13. Levhari D, Luski I (1978) Duopoly pricing and waiting lines. Eur Econ Rev 11:17–35CrossRefGoogle Scholar
  14. Loch C (1991) Pricing in markets sensitive to delay. Ph.D. dissertation, Stanford University, StanfordGoogle Scholar
  15. Luski I (1976) On partial equilibrium in a queueing system with two servers. Rev Econ Stud 43:519–525CrossRefGoogle Scholar
  16. Maglaras C, Zeevi A (2003) Pricing and capacity sizing for systems with shared resources: approximate solutions and scaling relations. Manag Sci 49:1018–1038CrossRefGoogle Scholar
  17. Maglaras C, Moallemi C, Zheng H (2016) Queueing dynamics and state space collapse in fragmented limit order book markets. Working paper, Columbia UniversityGoogle Scholar
  18. Mandelbaum A, Pats G (1995) State-dependent queues: approximations and applications. In: Kelly F, Williams R (eds) Stochastic networks. Proceedings of the IMA, vol 71. North-Holland, pp 239–282Google Scholar
  19. Mendelson H (1985) Pricing computer services: queueing effects. Commun ACM 28:312–321CrossRefGoogle Scholar
  20. Mendelson H, Whang S (1990) Optimal incentive-compatible priority pricing for the MM∕1 queue. Oper Res 38:870–883CrossRefGoogle Scholar
  21. Naor P (1969) On the regulation of queue size by levying tolls. Econometrica 37:15–24CrossRefGoogle Scholar
  22. Stolyar AL (2005) Optimal routing in output-queued flexible server systems. Probab Eng Inf Sci 19:141–189CrossRefGoogle Scholar
  23. Watts A (1996) On the uniqueness of equilibrium in Cournot oligopoly and other games. Games Econ Behav 13(2):269–285CrossRefGoogle Scholar
  24. Williams RJ (1998) An invariance principle for semimartingale reflecting Brownian motions in an orthant. Queueing Syst 30:5–25CrossRefGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Ying-Ju Chen
    • 1
  • Costis Maglaras
    • 2
  • Gustavo Vulcano
    • 3
  1. 1.School of Business and Management & School of EngineeringThe Hong Kong University of Science and TechnologyKowloonHong Kong
  2. 2.Columbia Business SchoolNew YorkUSA
  3. 3.School of BusinessUniversidad Torcuato di TellaBuenos AiresArgentina

Personalised recommendations