Dynamic Auctions for On-Demand Services

Abstract

In this paper, we consider a market in which a finite number of firms compete in prices for the incoming demand for service. Upon every customer arrival, an independent auctioneer gathers bids from each one of the competing queuing systems and assigns the incoming customer to the system that submitted the lowest bid. We provide a simple characterization of Markov Perfect equilibrium in terms of “indifference prices,” i.e., price levels at which players are indifferent between committing available capacity or withholding it. We identify sufficient conditions for socially efficient performance in equilibrium.