Combinatorial Auction Bandwidth Trading: An Experimental Study

We study the interaction between internet service providers who lease bandwidth from owners of individual network links to form desired routes. Bandwidth markets were pioneered by Enron in the late 1990s by providing pooling points for switching and interconnecting. Williams Communications and RateExchange followed suit with their own markets [1]. Unfortunately, market dynamics, technical difficulties, and the collapse of Enron have brought these markets to an end. Two main factors hampered the implementation of these markets [2]. The first one has to do with the excessive time needed to disseminate new routing information, which is an artifact of the bilateral nature of contracting for routes. The second has to do with balance loading once carriers become multi-connected. These dynamic markets were setup to deal with the inefficient bilateral negotiations used in the industry. The inefficiency of bilateral contracting is due to the exposure effect from not being able to form attractive routes from individually leased links. This is a more general problem identified with markets of complementary goods/services. The combinatorial auction market mechanism has been proposed to alleviate the exposure effect [9]. Combinatorial auctions have been recently theoretically explored as a mechanism for bandwidth allocation [3, 7, 5]. Jain and Varaiya [5] propose a double-sided combinatorial auction mechanism for bandwidth trading whose implementation properties we explore using economic experiments in this paper.