Decentralized supply chain formation: A market protocol and competitive equilibrium analysis

WE Walsh and MP Wellman

Journal of Artificial Intelligence Research, 19:513–567, 2003.
Copyright © 2003 AI Access Foundation.

Abstract

Supply chain formation is the process of determining the structure and terms of exchange relationships to enable a multilevel, multiagent production activity. We present a simple model of supply chains, highlighting two characteristic features: hierarchical subtask decomposition, and resource contention. To decentralize the formation process, we introduce a market price system over the resources produced along the chain. In a competitive equilibrium for this system, agents choose locally optimal allocations with respect to prices, and outcomes are optimal overall. To determine prices, we define a market protocol based on distributed, progressive auctions, and myopic, non-strategic agent bidding policies. In the presence of resource contention, this protocol produces better solutions than the greedy protocols common in the artificial intelligence and multiagent systems literature. The protocol often converges to high-value supply chains, and when competitive equilibria exist, typically to approximate competitive equilibria. However, complementarities in agent production technologies can cause the protocol to wastefully allocate inputs to agents that do not produce their outputs. A subsequent decommitment phase recovers a significant fraction of the lost surplus.

Revised and extended version including material from a prior conference paper:

• Efficiency and equilibrium in task allocation economies with hierarchical dependencies (WE Walsh and MP Wellman). In Sixteenth International Joint Conference on Artificial Intelligence, pages 520–526, August 1999.

which in turn built on the approach originally presented as:

• A market protocol for decentralized task allocation (WE Walsh and MP Wellman). In Third International Conference on Multiagent Systems, pages 325–332, July 1998.