Design of an aggregated marketplace under congestion effects: asymptotic analysis and equilibrium characterization

Abstract

We study an aggregated marketplace where potential buyers arrive and submit requests-for-quotes (RFQs). There are n independent suppliers modeled as M∕GI∕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.