Controls That React To Market Conditions

At the start of each Spot Market The Merkato mechanism by which bandwidth is traded, in a progressive second price auction. An optimal fair market price is established and bandwidth is allocated to buyers, based on their bids relative to other buyers. auction, the seller floor price and quantity available for sale are determined by settings in the Seller agent’s valuation The value a buyer or seller places on bandwidth. Setting a valuation is part of setting a purchasing strategy. Valuation settings within a buyer agent let buyers specify the amount they are willing to pay for varying amounts of bandwidth. This information is used by the agent to respond to changing market conditions during a Merkato progressive second price auction. window. The seller can only release more bandwidth The amount of data transmitted or received per unit of time. When we refer to acquiring or selling bandwidth, we mean the amount of information that can be sent over a connection at one time, at the allowed speed, without packet loss or excessive delay. Bandwidth is measured in bits-per-second. or remove bandwidth during an auction, in response to changing market conditions, via Buyer agents configured by the seller. Essentially, these Buyer agents contend with actual buyers for bandwidth. Because “real” buyers must out-bid these Buyer agents to obtain the bandwidth they hold, the end result is that bandwidth is withheld from the marketplace until a desired price point is reached.

Valuation for Buy-Back Agents

Although any valuation can be used for buy-back agents, we recommend that you use the Linear valuation, for two reasons:

• It is very easy to determine the amount of bandwidth “held back” by Linear valuation Buyer agents and the price at which they will release it. Use of Buyer agents with other valuations requires extensive modeling to ensure that they release the desired amount of bandwidth at the desired price points.

• It is relatively easy for “real” buyers to detect the presence and determine the settings for Linear buyers. One of the important features of Merkato is its openness¾the ability of buyers to view what all other buyers have offered for bandwidth, letting them optimize their strategy. If buyers can easily detect the price points at which more bandwidth is released to the market, they can incorporate it into their buying strategies. Also, the transparency of the Linear bidder’s settings allows the seller to change the price-point or quantities for these buyers notifying all buyers of the change.

Example

To illustrate how buy-back agents work, consider a case where the seller has a floor price The lowest price the seller will accept for bandwidth. The seller can establish the floor price through the Seller agent. of $100 per Mbps One of the ways of expressing units of bandwidth-Megabits-per-second (1,000,000 bits-per-second). for the first 25 Mbps of bandwidth released to the market, and is willing to release three more 25 Mbps blocks of bandwidth if the price reaches $125, $150, and $175 respectively. This would be accomplished with the following seller/inelastic valuation settings for the Seller agent The program that interacts with the rest of Merkato on behalf of buyers and sellers. Buyers can acquire bandwidth by configuring their agents to offer the price they are willing to pay for a range of available quantity, or use their agent to request a quote for a fixed-price bandwidth reservation. Sellers configure their agents with a quantity of bandwidth for sale and a minimum price they are willing to accept for that quantity. and three buy-back agents:

Considerations About Buy-Back Agents

A few cautionary notes are in order:

(1)   The additional bandwidth will be released, at each price point, only when the market price The price for something that buyers and sellers agree on. Merkato establishes a market price for bandwidth during each spot market auction round. There is a fixed amount for sale, so as demand increases, prices rise. The market price is reached when the cumulative demand of all the buyers is exactly equal to the amount of bandwidth being offered by the seller. for all buyers exceeds the unit price represented by the buy-back agent settings. There is no way to penalize only the buyer who desires an unusual amount of bandwidth for a short amount of time.

(2)   You cannot use this method to reduce the price for bandwidth as demand goes up (that is, to provide a quantity discount). This kind of pricing is possible in the reservation market The Merkato market mechanism by which a specified quantity of bandwidth, for a specific duration, is sold for a firm price specified by the seller and agreed to by the buyer. This is an automated process based on a rate sheet that the seller establishes in advance., however.

(3)   Buy-back agents tend to hold the market price at their level until demand is sufficient to reach the next level. This is because, until demand is sufficient to take all their bandwidth away, these bidders act as the lowest successful bidder and set the market price. There is nothing wrong with this, but the “stickiness” of the market price tends to surprise some first-time observers.

(4)   Changes in the settings of buy-back agents take effect as soon as you click Apply. The changes affect the auction in progress.

Although it reduces market “openness,” a single buy-back agent using the Parabolic valuation, whose bid “curve” is a line, may in some cases be used to replace many Linear buy-back agents. This also eliminates the price “stickiness” that results when Linear buy-back agents are used.