Article ID: | iaor20082063 |
Country: | United States |
Volume: | 53 |
Issue: | 8 |
Start Page Number: | 1345 |
End Page Number: | 1358 |
Publication Date: | Aug 2007 |
Journal: | Management Science |
Authors: | Whinston Andrew B., Koehler Gary J., Guo Zhiling |
In this paper, a market-based decomposition method for decomposable linear systems is developed. The solution process iterates between a master problem that solves the market-matching problem, and subproblems that solve the agents’ bundle-determination problems. Starting from any initial price and feasible allocation, system optimality can be achieved under a dynamic market-trading algorithm in a finite number of trades. The final market-clearing prices are discovered by this market trading and an efficient allocation is achieved by direct, wealth-improving resource exchanges among self-interested agents. Certain types of strategic behavior by the agents and a dealer in the marketplace are studied as well. Our proposed market mechanism addresses price dynamics, incentive issues, and economic transactions of real-world, distributed decision-making situations more realistically than traditional decomposition approaches. In addition, it can be operated in both synchronous and asynchronous environments. We provide a market-based paradigm for decentralized problem solving and information processing that can be easily implemented to support real-time optimization of distributed systems.