Primary Versus Secondary Infrastructure Capac - 2022 - European Journal of Opera

European Journal of Operational Research 303 (2022) 668–687
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European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor
Production, Manufacturing, Transportation and Logistics
Primary versus secondary infrastructure capacity allocation

mechanisms
Alexandre Jacquillat a, Vikrant Vaze b,∗, Weilong Wang c
a
Sloan School of Management, Massachusetts Institute of Technology, 100 Main St, Cambridge, MA, 02142, USA
b
Thayer School of Engineering, Dartmouth College, 14 Engineering Dr, Hanover, NH, 03755, USA
c
Krannert School of Management, Purdue University, 403 W State St, West Lafayette, IN, 47906, USA
a r t i c l e i n f o a b s t r a c t
Article history: Many infrastructure systems are governed by non-monetary capacity allocation: users submit scheduling
Received 8 March 2021 requests and an infrastructure manager determines a schedule of utilization given capacity restrictions.
Accepted 1 March 2022
Two broad approaches exist to cope with information asymmetry. Under a primary mechanism, the in-
Available online 14 March 2022
frastructure manager determines the eventual schedule. Under a secondary mechanism, users can swap
Keywords: their service units following the scheduling adjustments from the infrastructure manager. The secondary
Game theory mechanism provides flexibility to align the schedule with users’ (private) preferences. However, this paper
Capacity allocation shows that the secondary mechanism may not result in more efficient outcomes when users are strate-
Multi-period scheduling gic. We develop a multi-stage capacity allocation game in infrastructure systems characterized by multi-
period operations, discrete service units and non-atomistic users. We show that the primary mechanism
either is incentive compatible, or incentivizes users to voluntarily displace low-value service units from
peak to off-peak periods. Such “good gaming” behaviors mitigate system-wide costs. In contrast, the sec-
ondary mechanism incentivizes users to request more service units than preferred in peak periods. Such
“bad gaming” behaviors increase system-wide costs. The costs from “bad gaming” may outweigh the ben-
efits from secondary swaps: system-wide costs can be lower under the (restricted) primary mechanism
than under the (flexible) secondary mechanism.
© 2022 Elsevier B.V. All rights reserved.
1. Introduction ity allocation outcomes and user preferences. To address this issue,
market-based solutions have been promoted to provide access to
Infrastructure systems face critical challenges in meeting the users that assign the highest value to it — applications include
high demand with limited capacity. When managed improperly, time-of-use pricing in power systems (Albadi & El-Saadany, 2008)
demand-capacity imbalances create significant costs—huge capac- and spectrum auctions in telecommunications (Cramton, 1995).
ity investments at the planning level, barriers to entry at the man- However, capacity allocation often takes place via non-monetary
agerial level, and service deterioration at the operational level. For mechanisms in other domains.
instance, the deployment of smart meter technologies in power Under non-monetary capacity allocation, users (e.g., airlines,
systems required € 51 billion investments in the European Union train operators, shipping companies) submit requests to schedule
(Faruqui, Harris, & Hledik, 2009). In air transportation, flight de- service units (e.g., flights, trains, container ships). A centralized in-
lays cost over $30 billion annually in the United States (Ball et al., frastructure manager (e.g., airport, railway, port) displaces some
2010). In vertically integrated railways, access restrictions can limit service units from peak to off-peak periods to comply with capac-
capacity utilization and competition (Gomez-Ibanez, 2003). ity restrictions. Without monetary payments, it is challenging to
In the absence of capacity expansion opportunities, mitigating enable users to reveal the valuation of their service units while en-
demand-capacity imbalances requires allocating capacity among suring incentive compatibility. Therefore, a typical objective of the
competing users. This is complicated by the fact that users infrastructure manager is to minimize deviations from users’ re-
hold private information regarding their preferred schedule of quests. But the devil is in the details: the impact of non-monetary
utilization—giving rise to potential misalignments between capac- capacity allocation depends on the rules governing which units
end up being scheduled in peak periods vs. displaced to off-peak
periods.
∗
Corresponding author.
E-mail address: vikrant.s.vaze@dartmouth.edu (V. Vaze).
https://doi.org/10.1016/j.ejor.2022.03.003
0377-2217/© 2022 Elsevier B.V. All rights reserved.
A. Jacquillat, V. Vaze and W. Wang European Journal of Operational Research 303 (2022) 668–687
Table 1
Example of user preferences and outcomes in a two-period setting with a per-period capacity of 2.
Unit Ideal Schedule Unit Requested Time under Requested Time under
No. User Time Valuation Primary Mechanism Secondary Mechanism
1 A Period 1 5 Period 1 Period 1

2 A Period 1 1 + ε2 Period 2 Period 1
3 A Period 2 1 + ε3 Period 2 Period 1
4 B Period 1 1 + ε4 Period 1 Period 1
To circumvent information asymmetry, non-monetary mecha- be scheduled in Period 2. As this paper shows, under the primary
nisms can decentralize some decisions to infrastructure users— mechanism, User A may voluntarily request Unit 2 in Period 2 to
creating a distinction between primary and secondary mecha- “protect” Unit 1—resulting in a 1-period displacement for Unit 2,
nisms. Under primary mechanisms, the infrastructure manager de- and hence a cost of 1 + ε2 . In contrast, under the secondary mech-
termines the eventual schedule of utilization based on user re- anism, User A may request all three of its units in Period 1, and
quests. In contrast, secondary mechanisms allow users to swap User B continues to request Unit 4 in Period 1 as well. So the in-
among their own service units following the scheduling adjust- frastructure manager must displace two of these units from Period
ments from the infrastructure manager—so users can select which 1 to Period 2. Among the six optimal solutions, the infrastructure
units to maintain at preferred periods, and which ones to displace manager selects one arbitrarily (with equal likelihood). Thus, there
to less-preferred periods. At least in principle, secondary mecha- is a 50% chance that one unit from User A and one from User B are
nisms provide an additional degree of freedom to the users to align displaced and 50% chance that both displaced units belong to User
the schedule of utilization with their (private) preferences. What A. In the first case, User A chooses to displace Unit 3 to Period 2,
could possibly go wrong? resulting in a 1-period net displacement for Unit 4, and hence a
This paper shows that the answer is not straightforward: sec- cost of 1 + ε4 ; in the latter case, User A chooses to displace Units
ondary mechanisms do not necessarily result in more efficient ca- 2 and 3 to Period 2 resulting in a net displacement of 1 period
pacity allocation outcomes when users are strategic. Strategic be- for Unit 2, and hence a cost of 1 + ε2 . In this example, the pri-
haviors stem from scheduling requests that are inconsistent with mary mechanism leads to a lower expected cost if ε2 < ε4 ; both
the IUs’ true preferences. This paper finds that strategic behaviors mechanisms achieve the same expected cost if ε2 = ε4 ; and the
are much stronger under secondary mechanisms than under pri- secondary mechanism leads to a lower expected cost if ε2 > ε4 .
mary mechanisms. This creates a trade-off between enabling users As exemplified in Table 1, this paper focuses on infrastructure
to align their schedule with their own preferences vs. mitigat- systems characterized by multi-period operations with discrete ser-
ing strategic behaviors that can amplify the costs of information vice units and non-atomistic users. First, we consider systems in
asymmetry. As the results show, a primary mechanism (which al- which the value of infrastructure access is tied to timing, leading
locates capacity centrally) may result in lower system-wide costs to peak vs. off-peak periods. We primarily consider a two-period
than a secondary mechanism (which provides additional flexibility setting to capture interdependencies across consecutive time peri-
to users). ods while retaining analytical tractability. We relax this assumption
To derive these insights, this paper proposes an original multi- computationally for robustness in Section 7. Second, we consider
stage game-theoretic framework that captures interactions be- systems with discrete service units (e.g., flights, trains, container
tween a centralized infrastructure manager and distributed users ships) that cannot be broken down into fractional pieces; this ex-
under primary and secondary non-monetary mechanisms. Due to cludes systems with continuous service units (e.g., water, electric-
the combinatorial complexities arising from multiple time peri- ity, telecommunications). Third, we consider systems utilized by a
ods, multiple agents, and multiple service units, it would be highly few non-atomistic users, each consuming a significant portion of
challenging to design an optimal strategyproof mechanism. More- the overall capacity (e.g., airlines, train operators, liner shipping
over, any strategyproof mechanism could potentially rely on com- companies); this excludes other systems utilized by a large number
plex rules of engagement that would deviate from current practice, of atomistic users (e.g., road drivers). Within these restrictions, we
such as monetary payments in auction-based mechanisms (Ball, consider a general setting, reflecting the core trade-offs in various
Estes, Hansen, & Liu, 2020; Rassenti, Smith, & Bulfin, 1982), the domains such as air traffic management, maritime logistics, railway
use of coupons in lieu of government-issued money in scrip sys- capacity allocation, and job scheduling in cloud computing.
tems Friedman, Halpern, & Kash (2006); Johnson, Simchi-Levi, & Specifically, this paper makes the following contributions.
Sun (2014), promises/threats of future favorable/unfavorable allo-
cations in dynamic non-monetary mechanisms (Balseiro, Gurkan, • Developing a scheduling game of non-monetary capacity allocation
& Sun, 2019; Guo & Hörner, 2015), etc. Instead, we formalize sim- in multi-period infrastructure systems with non-atomistic users
ple primary and secondary mechanisms that are based on current and discrete service units, under primary and secondary mecha-
practice. We identify the Nash equilibria under both mechanisms nisms (Section 3). The primary mechanism is formulated as a
to quantify opportunities for strategic behaviors and resulting sys- two-stage game: the infrastructure users first submit schedul-
tem performance. ing requests to an infrastructure manager, who then makes
Our framework is illustrated in Table 1, for a two-period in- scheduling decisions. The secondary mechanism includes an ad-
stance with an infrastructure capacity of two units per period. ditional third stage in which each user can swap the schedule
Users A and B request three units and one unit, respectively. The times among its own service units.
ideal schedule time for Units 1, 2 and 4 is Period 1 and that for • Showing that the adverse effects of strategic behaviors are lim-
Unit 3 is Period 2. Unit 1 has a higher valuation because it is more ited under the primary mechanism (Section 4). By identifying
time-sensitive and/or more profitable—hence, more costly to dis- the Nash equilibrium (or equilibria), we show that the primary
place to its less-preferred period. We assume that Units 2, 3, and mechanism is incentive compatible when demand-capacity im-
4 have comparable valuations, equal to 1 + ε2 , 1 + ε3 and 1 + ε4 , balances are limited, there are many (small) users, or unit val-
respectively, where ε2 , ε3 , ε4 are small (positive or negative) num- uations are weakly differentiated. When demand-capacity im-
bers. Given the capacity limitation, one of Units 1, 2 and 4 needs to balances are larger, the market is more concentrated, and unit
669
valuations are more strongly differentiated, users may volun- incentives of agents (in our case, the infrastructure users) with
tarily displace low-valuation service units from peak periods to the interests of a central decision-maker (in our case, the infras-
off-peak periods to “protect” their own high-valuation units in tructure manager). Following this logic, an extensive literature has
peak periods. Such strategic behaviors reduce the expected cost designed combinatorial auctions for resource allocation problems
of each user as well as system-wide costs—we refer to them as (see, for instance, Rassenti et al. (1982) and Ball et al. (2020) for
“good gaming”. airport slot allocation, Borndörfer et al. (2006) and Stojadinović,
• Showing that the potential for strategic behaviors is much more Bošković, Trifunović, & Janković (2019) for railway capacity alloca-
significant under the secondary mechanism (Section 5). Proper- tion, Strandenes & Wolfstetter (2005) for port capacity allocation,
ties of the Nash equilibrium (or equilibria) suggest that, under and (Cramton, Shoham, & Steinberg, 2006; Parkes & Ungar, 20 0 0)
the secondary mechanism, users never engage in good gam- for general principles). In these auction-based mechanisms, mone-
ing; instead, users often request more units than preferred dur- tary payments are critical to ensure incentive compatibility.
ing peak periods to secure a sufficiently attractive (aggregate) Recently, non-monetary mechanisms have been developed to
schedule. Such strategic behaviors increase system-wide costs— tackle problems where payments are undesirable or impractical,
we refer to them as “bad gaming”. such as kidney exchange, school assignment, room scheduling, job
• Showing that the secondary mechanism can result in higher ex- scheduling, etc. (Abdulkadiroğlu, Pathak, & Roth, 2009; Ashlagi &
pected costs than the primary mechanism (Section 6). Numeri- Shi, 2016; Chen, Gravin, & Lu, 2014; Gale & Shapley, 1962; Mosci-
cal results quantify the trade-off between providing scheduling broda & Schmid, 2009; Roth, Sönmez, & Ünver, 2004; Roth & So-
flexibility through a secondary mechanism vs. mitigating op- tomayor, 1992). In the computer science literature, several studies
portunities for adverse strategic behaviors through a primary have proposed approximation schemes, which sacrifice optimal-
mechanism. The secondary mechanism can be beneficial when ity to achieve incentive compatibility in a non-monetary setting
service units are sufficiently differentiated for swaps to be ben- Procaccia & Tennenholtz (2013); approximate the objective func-
eficial, but not enough to induce users to voluntarily displace tion via machine learning Narasimhan, Agarwal, & Parkes (2016);
their service units under the primary one. Otherwise, there ex- or approximate the incentive compatibility constraints (Gorokh,
ist instances where the primary mechanism leads to lower ex- Banerjee, & Iyer, 2016). Another branch of the literature has fo-
pected costs than the secondary one. cused on designing exact non-monetary mechanisms that achieve
• Showing that the findings are robust to the model’s assumptions incentive compatibility, by specifying appropriate rules of engage-
(Section 7). We relax two assumptions by considering instances ment between agents. Notably, “scrip systems” rely on artificial
with many different unit valuations and more than two periods. currencies to replicate the outcomes of monetary mechanisms
Results confirm that, in this general setting, the adverse effects without involving actual monetary transfers (see, e.g. Friedman
of strategic behaviors are much stronger under the secondary et al., 2006; Johnson et al., 2014). In dynamic settings, incentive
mechanism than under the primary mechanism, and that the compatibility can be achieved by leveraging the repeated interac-
primary mechanism may lead to lower expected costs than the tions, for instance, by promising a better allocation to agents that
secondary mechanism. behaved truthfully in the past (see, e.g. Balseiro et al., 2019; Guo
& Hörner, 2015). Due to the combinatorial complexities of schedul-
Ultimately, these insights suggest that allowing secondary ing with multiple periods and multiple service units, we consider
swaps in capacity allocation does not necessarily enhance system simpler mechanisms without artificial currencies and without re-
performance. This may be a surprising result, as secondary swaps peated interactions.
provide additional flexibility to the users to align their schedule Another stream of work focuses on congestion and scheduling
of infrastructure utilization with their preferences. However, such games. Starting with Rosenthal (1973), congestion games consider
flexibility can be detrimental in the presence of strategic behav- a set of resources (e.g., communication links, machines, roads, etc.)
iors. such that the utilization of a resource imposes a negative external-
ity on the system. Price-based mechanisms for congestion mitiga-
2. Literature review tion have been proposed to mitigate the “price of anarchy”, i.e., the
relative cost increase from the centralized first-best solution to the
Capacity allocation mechanisms are supported by scheduling worst-case Nash equilibrium (Acemoglu & Ozdaglar, 2007; Rough-
algorithms. Canonical examples include economic dispatch and garden & Tardos, 2002). Computer scientists have also designed co-
unit commitment in power systems (Soliman & Mantawy, 2012; ordination mechanisms for job scheduling, where each agent min-
Zhu, 2015), schedule coordination in airport demand management imizes the completion time of its own job while a centralized
(Jacquillat & Odoni, 2015; Zografos, Salouras, & Madas, 2012) and entity aims to minimize the last completion time across all jobs
berth allocation in maritime logistics (Cordeau, Laporte, Legato, (Caragiannis, 2011; Christodoulou, Koutsoupias, & Nanavati, 2009).
& Moccia, 2005; Wang, Zhen, Wang, & Laporte, 2018). These ap- Instead of involving payments, coordination mechanisms provide
proaches optimize the schedule of utilization under perfect infor- more or less valuable resources to different players. This concept is
mation on users’ scheduling preferences. In reality however, infras- also at the core of the mechanisms considered in this paper. How-
tructure managers have access to no, or limited, information on ever, these studies did not consider multi-period problems nor the
users’ true scheduling preferences. Hence, scheduling interventions possibility of a player submitting multiple jobs, both of which are
may give rise to strategic behaviors. essential features of infrastructure systems.
The game-theoretic aspects of capacity allocation across non- Last, problems where a central entity optimizes first-stage de-
atomistic users fall under mechanism design. This literature decisions and users then engage in downstream competition have
signs games featuring efficiency (i.e., maximizing total value), in- been framed as bi-level optimization problems (Bracken & McGill,
dividual rationality (i.e., incentivizing participation), incentive com- 1973). They have been applied to capacity expansion in power sys-
patibility (i.e., incentivizing truthful behaviors), and budget balance tems under downstream utility competition (Kazempour & Conejo,
(i.e., avoiding the need for outside monetary transfers) (Dasgupta, 2012; Murphy & Smeers, 2005; Wogrin, Barquín, & Centeno, 2013).
Hammond, & Maskin, 1979; Maskin, 1999; Myerson, 1979). Perhaps This problem has been formulated as a Mathematical Program with
the most common strategyproof mechanism is the Vickrey-Clarke- Equilibrium Constraints (MPEC) This framework relies critically
Groves (VCG) mechanism Clarke (1971); Groves (1973); Vickrey on the inner optimization problem being continuous. In contrast,
(1961). This mechanism designs payment schemes to align the the allocation of capacity across discrete service units requires a
670
Fig. 1. Multi-stage game between N IUs and the IM under each mechanism (shaded boxes indicate decisions).
N
new combinatorial modeling framework. This is the focus of our L = P L . Last, let α =
jnt nt t n=1 jnt be the total number of SUs pre-
paper. ferred to be scheduled in period t.
Let us turn to each IU’s scheduling requests. We partition the
set of SUs into subsets Snt that belong to IU n and are submitted
3. Game-theoretic framework H and S L based on
in period t. Again, we partition it into subsets Snt nt
the SU valuations. We define lnt = |Snt |, lntL = S L , and l H = S H .
We develop a multi-stage game between a centralized infras- nt nt nt

N
tructure manager (IM)—e.g., airport, railway, or port manager, etc.— Let βt = lnt be the total number of SUs submitted in period t.
and distributed infrastructure users (IUs)—e.g., airlines, train oper- n=1
ators, liner shipping companies—interested in scheduling service Let Knt = Pnt ∩ (∪t̄ ∈T ,t̄ =t Snt̄ ) be the set of SUs of IU n preferred in
units (SUs)—e.g., flights, trains, container ships. Each IU holds pri- period t but submitted in some other period t̄ = t, and by knt =
vate information regarding the preferred schedule time and rel- |Knt | the number of such SUs. Similarly, Knt

L = P L ∩ (∪

nt t̄ ∈T ,t̄ =t Snt̄ ),

L
ative valuation of each SU. The IUs simultaneously submit a set H = P H ∩ (∪

Knt nt
H H L L
t̄ ∈T ,t̄ =t Snt̄ ), knt = Knt , and knt = Knt .
H
of SUs to be scheduled in each period. The IM then determines a Finally, let Snt be the set of SUs belonging to IU n that get
schedule of utilization, given capacity limitations. The IM cannot scheduled in period t by the IM—to comply with capacity Ct . We
reject any SU, but can reschedule each SU to an earlier or a later define the true displacement of SU i (denoted by ui ) as the absolute
period than requested. The IM aims to minimize the displacement, difference between its preferred time and its scheduled time, and
defined as the difference between the requested vs. schedule times the rescheduling displacement of SU i (denoted by ui ) as the abso-
of SUs. lute difference between its requested time and its scheduled time.
Figure 1 illustrates the structure of each mechanism. Under the For analytical tractability, we consider in most of the paper a
primary mechanism, the IM schedules SUs based on the IUs’ re- setting with T = 2. We further assume that total demand does
quests. In contrast, the secondary mechanism allows IUs to swap the not exceed total capacity, i.e., α1 + α2 ≤ C1 + C2 . Capacity alloca-
schedule times among their own SUs following the IM’s decisions tion interventions may still be necessary when more SUs are re-
to circumvent information asymmetry. Throughout this paper, we quested than available capacity in a given period (i.e., β1 > C1 or
focus on mechanisms where IUs request a time for each of their β2 > C2 ), but all requests can be accommodated across the two
SUs, but do not indicate the relative valuation of their SUs. periods. This is consistent with scheduling settings in many in-
frastructure systems, where imbalances may exist at peak times of
the day, but overall capacity is typically sufficient to satisfy total
3.1. Primary mechanism
demand across the day. We relax this assumption in Appendix A
to investigate the impact of overall demand-capacity imbalances
We consider a setting with T periods, indexed by t ∈ T =
(i.e., α1 + α2 > C1 + C2 ) under the primary mechanism (in which
{1, · · · , T }. In each period, the infrastructure capacity is denoted by
case the IM needs to reschedule some SUs before or after the two-
Ct . N denotes the set of IUs (indexed by n ∈ N ) and I the set of
period horizon, in t = 0 or t = 3). We also establish the robustness
SUs (indexed by i ∈ I).
of our findings in a setting with T > 2 in Section 7.
Let us first characterize IUs’ scheduling preferences. We parti-
An example of these dynamics is illustrated in Figure 2.
tion the set of SUs into subsets Pnt of SUs that belong to IU n ∈ N
Figure 2a shows a hypothetical preferred schedule. Each IU’s SUs
whose preferred (i.e., ideal) schedule time is period t ∈ T . We fur-
H and P L , denoting the set of are represented by a different color, and the SU valuation is indi-
ther partition it into two subsets, Pnt nt
cated by the color intensity. Figure 2b shows scheduling requests.
SUs whose ideal schedule time is period t and which have a valu-
H = P H , and In this instance, the IUs exhibit strategic behaviors, as more SUs
ation δ H and δ L , respectively. We define jnt = |Pnt |, jnt nt
671
Fig. 2. Schematic representation of preferred, submitted and final schedules with N = 3 IUs.
are requested in Period 1 than preferred in that period. Obviously search for the Nash equilibrium of the game.
this need not always be the case. Figure 2c shows a possible sched-
ule resulting from the IM’s interventions.

T
(P1(n )) min Ln = ES δ H
|ui | + δ L
|ui |
The second-stage problem corresponds to the IM’s schedul- S
t=1 i∈Pnt
H i∈Pnt
L
ing decisions, referred to as (P 2 ). The IM minimizes displacement
(4)
(Equation (1)). Constraint (2) defines the displacement ui of each
SU i as the difference between its requested and scheduled times.
Constraint (3) applies the infrastructure capacity restrictions. This s.t. ui = t̄ − t ∀i ∈ Pnt ∩ Snt̄ , ∀t, t̄ ∈ T (5)
problem can be easily solved as an integer program (Jacquillat &
Odoni, 2015; Zografos et al., 2012).
Snt = Pnt (6)

I
(P 2 ) min |
ui | (1) t∈T t∈T
S,
u
i=1
S,
u solve (P 2 ) (7)

N
N
s.t.
ui = t̄ − t ∀i ∈ Snt ∩ Snt̄ , ∀n ∈ N , ∀t, t̄ ∈ T 3.2. Secondary mechanism
n=1 n=1
(2) The secondary mechanism is formalized as a three-stage game,
where each IU n first submits scheduling requests, the IM then
N
optimizes scheduling interventions, and each IU finally performs
Snt ≤ Ct ∀t ∈ T (3) schedule swaps. We refer to these problems as Problems (S1(n )),
n=1 (S2 ) and (S3(n )), respectively.
The IM’s problem (Problem (S2 )) is identical to the one consid-
The IM’s decisions do not account for the IUs’ true schedule
ered earlier (Problem (P 2 )), and hence can be easily solved as an
preferences Pnt or SU valuations (δ H or δ L ), which are private in-
integer program (Jacquillat & Odoni, 2015; Zografos et al., 2012).
formation to each IU. The formulation is agnostic to which SUs be-
We now define Problem (S3(n )). We denote by Sñt the set of
long to which IUs, and thus does not discriminate among the IUs.
SUs scheduled by IU n in period t after the swaps, and by u˜i
The problem may admit multiple optimal solutions, since the IM
the final displacement of SU i. Expression (8) minimizes the to-
can select which SUs to reschedule from the peak period to the
tal weighted displacement, by determining a final schedule S˜. The
off-peak period. As explained in Section 1, the IM selects an op-
constraints define the final displacement of any SU i, and ensure
timal solution arbitrarily from among all the optimal solutions of
that the swaps do not change the aggregate schedule of IU n. As
Problem (P 2 ) and each optimal solution is equally likely to get se-
one can see from the formulation below, Problem (S3(n )) also is
lected.
similarly easy to solve as an integer program.
Next we formulate each IU’s first-stage decision. The prob-

lem, referred to as (P 1(n )), minimizes each IU’s loss function, de-
T
noted by Ln and equal to the expected cost of true displacement (S3(n )) min δH |u˜i | + δ L |u˜i | (8)
S˜,u˜
(Equation (4)). The expectation is taken over all possible schedules t=1 i∈Pnt
H i∈Pnt
L
that optimally solve Problem (P 2 ) (and hence are equally likely),

and the cost of each SU i’s displacement is weighted by its valu-
s.t. u˜i = t̄ − t ∀i ∈ Pnt ∩ Sñt̄ , ∀t, t̄ ∈ T (9)
ation (δ L or δ H ). The constraints define the true displacement ui ,
ensure that IUs submits all their SUs, and that the schedule solves
the second-stage problem (P 2 ). Note that, unlike Problem (P 2 ),
Sñt = Snt ∀t ∈ T (10)
which reduces to an optimization problem with fixed inputs, and
can easily be formulated as an integer program, Problem (P 1(n )) Last, we formulate the initial problem of providing schedul-
is an equilibrium problem among all IUs and the IM. As such, it ing requests for each IU n—that is, Problem (S1(n )). Expres-
cannot be solved as a single optimization problem and we instead sion (11) minimizes the expected weighted displacement, given
672
that all the SUs from IU n must be submitted (Constraint (12)), The optimal solution to Problem (P 2 ) displaces SUs in excess
given the subsequent scheduling interventions from the IM (Con- of capacity from the peak period (if any) to the off-peak period.
straint (13)) and then the resulting swaps (Constraint (14)). Again, If β1 > C1 , then Period 1 is the peak period and the IM displaces
the expectation is taken here over all optimal solutions of (S2 ), β1 − C1 SUs from Period 1 to Period 2 (with a total displacement
which are equally likely. of β1 − C1 periods). Similarly, if β2 > C2 , then Period 2 is the peak

period and the IM displaces β2 − C2 SUs from Period 2 to Period 1

T (with a total displacement of β2 − C2 periods). If β1 ≤ C1 and β2 ≤
(S1(n )) min Ln = ES δ H
|u˜i | + δ L
|u˜i |
S C2 , the IM displaces no SU. Problem (P 2 ) may not admit a unique
t=1 i∈Pnt
H i∈Pnt
L
solution; as mentioned earlier, we assume that in such cases, each
(11)
optimal solution is equally likely to be selected by the IM.
The resulting loss function of each IU characterizes its first-
s.t. Snt = Pnt (12) stage expected cost. It is elicited in Lemma 1. When the number
t∈T t∈T of submitted SUs does not exceed capacity in either period, each
IU’s loss is equal to the number of SUs requested in their non-
S,
u solve (P 2 ) (13) preferred periods, weighted by their valuations (Equation (15)).
When the submitted schedule exceeds capacity during one period,
each IU’s loss function is driven by three factors (i) the expected
S˜, u˜ solve (S3(n )), ∀n ∈ N (14) displacement cost of the SUs preferred and submitted in the peak
period, (ii) the expected displacement cost of the SUs preferred in
Similar to Problem (P 1(n )), Problem (S1(n )) is also an equilib- the off-peak period and submitted in the peak period, and (iii) the
rium problem that cannot be solved as a single optimization prob- deterministic cost of the SUs preferred in the peak period and sub-
lem and we instead search for the Nash equilibrium. mitted in the off-peak period.
3.3. Summary Lemma 1. The loss function of each IU n ∈ N under the primary
mechanism is given as follows:
The first-best outcome (obtained in the absence of informa- If β1 ≤ C1 , β2 ≤ C2 : Ln = kHn1 δ H + kLn1 δ L + kHn2 δ H + kLn2 δ L (15)
tion asymmetry) simply involves displacing the lowest-valuation
SUs from the peak period to the off-peak period. Obviously, it may
not be achievable due to information asymmetry. We search for β1 − C1 H H L L
If β1 > C1 : Ln = jn1 δ + jn1 δ
the Nash equilibrium (or equilibria) of the game under the pri- β1
mary mechanism (Section 4) and under the secondary mechanism C1 H H
(Section 5), and we compare the resulting capacity allocation out- + kn1 δ + kLn1 δ L + kH
n2 δ + kn2 δ
H L L
(16)
β1
comes (Section 6). Since each game is finite, a (pure-strategy or
mixed-strategy) Nash equilibrium is guaranteed to exist. If a so-
lution such that Snt = Pnt , ∀n ∈ N , ∀t ∈ T (i.e., kn1 = · · · = knT = β2 − C2 H H L L
If β2 > C2 : Ln = jn2 δ + jn2 δ
0, ∀n ∈ N ) is the unique Nash equilibrium, then the mechanism is β2
incentive compatible. Otherwise, IUs have opportunities for strate- C2 H H
+ k δ + kLn1 δ L + kH
n2 δ + kn2 δ
H L L
(17)
gic behaviors. β2 n1
4. Equilibrium under the primary mechanism 4.2. Characterization of nash equilibrium
We characterize the Nash equilibrium (or equilibria) under the We now use the loss functions characterized in Lemma 1 to
primary mechanism. We show that IUs provide truthful inputs identify the Nash equilibrium (or equilibria) of the game.
when demand-capacity imbalances are moderate and/or when Proposition 1 shows that the primary mechanism is incentive com-
markets are not highly concentrated and/or when SU valuations patible when demand does not exceed capacity in either period.
are weakly differentiated. Otherwise, IUs may deliberately move Thus, all potential gaming opportunities identified later in this sec-
low-valuation SUs from peak to off-peak periods. Yet, such gaming tion can be attributed to the demand-capacity imbalances.
behaviors lower the expected costs borne by every IU, and thus the
total costs. We refer to them as “good gaming”. Proposition 1. If α1 ≤ C1 and α2 ≤ C2 , kn1 = kn2 = 0, ∀n ∈ N is a
Section 4.1 reduces the two-stage game to a simultaneous game pure-strategy Nash equilibrium under the primary mechanism. If α1 +
between the IUs, and identifies the corresponding loss functions. α2 < C1 + C2 , it is the only pure-strategy Nash Equilibrium.
Sections 4.2 and 4.3 then characterize the Nash equilibrium (or Proposition 2 provides the main result from this section by
equilibria) and discuss the overall system performance under the characterizing the Nash equilibria when the schedule exceeds
primary mechanism. All proofs from this section are presented in available capacity in one period. Without loss of generality, let
Appendix B. α1 > C1 and α2 < C2 . The proposition first shows that kn2 = 0, i.e.,
IUs have no incentives to move SUs from Period 2 (the off-peak
4.1. Identification of loss functions period) to Period 1 (the peak period). Then, kH n1 = 0, i.e., IUs have
no incentives to move high-valuation SUs at all. We then denote by
We first reduce the two-stage game between the N IUs and a Xn the number of low-valuation SU equivalents of IU n in the peak

centralized IM to an N-player single-stage game. In other words, period, i.e., Xn = jnL 1 + δδ L jnH1 . If Xn ≤ α1 −
H
kLp1 , i.e., if Xn is at
we compute the loss function of each IU for each combination p∈N \{n}
of first-stage submissions of all IUs in Problems (P 1(n )), while most equal to the total number of SUs that would be requested
accounting for the endogenous second-stage scheduling interven- in Period 1 if IU n submitted its own SUs truthfully while other
tions from the IM in Problem (P 2 ). To this end, we characterize IUs continued to submit the same way, then IU n provides truthful
all optimal solutions to Problem (P 2 ), and compute the resulting submissions. Otherwise, IU n strategically moves low-valuation SUs
expected cost borne by each IU. from Period 1 to Period 2.
673
Proposition 2. We assume that α1 + α2 < C1 + C2 and α1 > C1 . We 2, it increases the likelihood that any remaining SU will be dis-
define Xn = jnL 1 + δδ L jnH1 , ∀n ∈ N . For any solution (knt )n∈N ,t∈{1,2} , we
H
placed by the IM, so all other IUs have stronger incentives to move
denote: low-valuation SUs from Period 1 to Period 2 as well. We repeat
this process of moving low-valuation SUs preferred in Period 1
1 = {n|Xn > α1 −
A kLp1 }, from being requested in Period 1 to being requested in Period 2,
p∈N \{n} until the requested number of SUs in Period 1 is no more than

2 = {n|Xn < α1 −
A kLp1 }, the capacity in Period 1, or until all IUs who request any low-
valuation SUs in Period 1 are either in set A 2 or in set A0 , i.e.,
p∈N \{n}
satisfy Xn ≤ α1 − kLp1 . Specifically, we proceed as follows:
0 = {n|Xn = α1 −
A kLp1 }. p∈N \{n}
p∈N \{n}
(i) Sort IUs in decreasing order of Xn : Xn(1 ) ≥ Xn(2 ) ≥ · · · ≥ Xn(N )
The solution (knt )n∈N ,t∈{1,2} is a pure-strategy Nash equilibrium under i
−1
(ii) Denote by n∗ = max{i ∈ N |Xn(i ) > α1 − jnL ( p),1 } (guaran-
the primary mechanism if and only if the following five conditions are p=1
satisfied: teed to exist because Xn(1 ) > α1 ).
n∗

(i) kn2 = 0, ∀n ∈ N , (iii) Select KnL 1 ⊆ PnL1 ∀n ∈ {1, · · · , n∗ } such that KL =
n1
n1 = 0, ∀n ∈ N ,
(ii) kH n=1
n∗

jnL 1 , α1 − C1 . Set KnL 1 = ∅ for all n ∈ {n∗ + 1, · · · , N }
(iii) kLn1 = min jnL 1 , α1 − 1 ,
kLp1 − C1 , ∀n ∈ A min
n=1
p∈N \{n}
2 , and KnH1 = Kn2 = ∅ for all n ∈ N . Note that the sets KnL 1 ∀n ∈
(iv) kLn1 = 0, ∀n ∈ A
{1, · · · , n∗ } are
not uniquely defined (as there may exist mul-

(v) 0 ≤ kLn1 ≤ min jnL 1 , α1 − 0 .
kLp1 − C1 , ∀n ∈ A tiple pure-strategy Nash equilibria) but we can select any set
p∈N \{n} that satisfies these conditions.

n∗

Note that Xn is non-decreasing in jnL 1 , jnH1 and δδ L . All else equal,
H
By construction, we have β1∗ = max α1 − L
jn1 , C1 . Every
Xn thus admits higher values (i) when demand-capacity imbalances n=1
are stronger (i.e., when all IUs n ∈ N have higher values of jnL 1 and Nash equilibrium satisfies β1 ≤ β1∗ .
jnH1 ), (ii) when the market is more concentrated (i.e., when all SUs The Nash equilibrium is shown schematically in Figure 3.
are divided across a smaller number of IUs, resulting in higher val- Figure 3a characterizes a hypothetical preferred schedule with
ues of jnL 1 and jnH1 ), and (iii) when SU valuations are more strongly three IUs and demand-capacity imbalance in Period 1. Figure 3b
differentiated (resulting in stronger differences between δ H and shows that the Nash equilibrium involves truthful submissions un-
δ L ). der low SU heterogeneity. In this case, demand-capacity imbal-
Let us now interpret this result in some special cases. ances are not too strong and there is no single dominant IU. There-
fore, when the ratio δδ L is small enough (e.g., 1.1), Xn values remain
H
Corollary 1 shows that, when Xn is less than or equal to the to-
tal demand in the peak period for each IU n ∈ N , then truthful below C1 and truthful submissions form the unique Nash equilib-
submission is a Nash equilibrium. Moreover, this Nash equilibrium rium. In contrast, Figure 3c shows that the Nash equilibrium in-
is the unique pure-strategy Nash equilibrium if each Xn is less volves moving low-valuation SUs from Period 1 to Period 2 un-
der stronger SU heterogeneity (e.g., δδ L = 3). In this example, IU
H
than capacity. This suggests that the primary mechanism is incen-
tive compatible if (i) the demand-capacity imbalances are small 1 has many high-valuation SUs in Period 1, and is thus sensitive
enough, (ii) if there is a large enough number of IUs in the market, to the IM’s interventions; as a result, it voluntarily displaces low-
each with a sufficiently low market share, and/or (iii) if the differ- valuation SUs from Period 1 to Period 2. The resulting requested
entiation in SU valuations is weak enough. In contrast, deviations schedule, in this case, in Figure 3c satisfies β1 = C1 , but this is not
from truthful submissions occur under stronger demand-capacity always the case.
imbalances, more concentrated markets, and stronger SU valuation To summarize, the primary mechanism may not be incentive
heterogeneity. Corollary 2 highlights a specific extreme case of this compatible but any untruthful input submissions involve moving
general finding: if all SUs are equally valued, truthful submission low-valuation SUs from the peak period to the off-peak period. Un-
is the unique Nash equilibrium as long that there is no monopoly der small demand-capacity imbalances and/or markets with low
in Period 1. concentration and/or weak SU valuation heterogeneity, the IUs
provide truthful input submissions. In contrast, under stronger
Corollary 1. If Xn ≤ α1 , ∀n ∈ N , then kn1 = kn2 = 0, ∀n ∈ N is a demand-capacity imbalances, stronger market concentration, and
pure strategy Nash equilibrium. Moreover, if Xn < C1 , ∀n ∈ N , then stronger SU valuation heterogeneity, IUs might voluntarily displace
this is the unique pure-strategy Nash equilibrium. low-valuation SUs from the peak period to the off-peak period to
Corollary 2. If δ L = δ H and |{n ∈ N | jn1 > 0}| ≥ 2, then kn1 = kn2 = “protect” their own high-valuation SUs in the peak period—by re-
0, ∀n ∈ N is the unique pure-strategy Nash equilibrium. ducing the likelihood that these high-valuation SUs will then be
displaced by the IM to the off-peak period. As we shall discuss
In order to illustrate the IUs’ behaviors under the primary next, such strategic behaviors lower the expected costs borne by
mechanism, we use Proposition 2 to construct a Nash equilib- every IU and the expected system-wide costs—we thus refer to
rium when Xn > α1 for some IU n ∈ N —in other instances, truthful them as “good gaming” behaviors.
submissions form a Nash equilibrium. The Nash equilibrium con-
structed here may not be unique, but it corresponds to the Nash 4.3. Discussion of equilibrium under the primary mechanism
equilibrium that is the closest to the IUs’ true preferences. Specif-
ically, any IU n such that Xn > α1 will move some of its low-value The “good gaming” behaviors are identified in Corollary 3: as
SUs from Period 1 to Period 2 as long as the resulting number of any Nash equilibrium, where strategic deviations from truthful
SUs requested in Period 1 continues to exceed C1 . But such devi- submissions reduce the expected costs borne by each IU (by each
ations may result in other IUs “transferring” from set A 2 to sets of the IUs that deviate from truthful submissions as well as by

A0 and A1 : if any IU moves some SUs from Period 1 to Period every other IU that does not). As a result, the system-wide costs
674
Fig. 3. Preferred and submitted schedules under low and high SU valuation differentiation.
Fig. 4. Submitted schedule in Period 1 and total expected costs as a function of SU valuation heterogeneity.
are also lower at the Nash equilibrium compared to those under Using the proof of Proposition 2, this expression shows that good
truthful submissions. In other words, strategic behaviors reduce gaming mitigates system-wide costs. Specifically, the more the
the costs of information asymmetry. submissions deviate from the IUs’ preferences, i.e., the larger the
L
km1 , the lower the system-wide expected costs. Stated differ-
Corollary 3. Let Ln(0 ) and L∗n denote the expected loss function of user

m∈A 1
ently, system-wide costs become lower as “good gaming” becomes
n under truthful submissions and under the primary mechanism, re-
spectively. We have L∗n ≤ Ln(0 ) , ∀n ∈ N .
stronger—that is, as demand-capacity imbalances become stronger,
and/or as the market becomes more concentrated, and/or as SU
valuation heterogeneity becomes stronger.
We illustrate these behaviors in Figure 4. Figure 4a shows the
At one extreme, we know from Corollary 1 that there exists a
number of SUs submitted in Period 1 (i.e., β1 ), as a function of SU
Nash equilibrium such that β1 = α1 when Xn ≤ α1 , ∀n ∈ N —that is,
valuation heterogeneity, characterized by the ratio δδH . Figure 4b
L
jnH1
if δδH ≥
L
, ∀n ∈ N . In this case, the total expected cost across
shows the expected system-wide costs, also as a function of δδH . α1 − jnL 1
L
T , is equal to:
all IUs under truthful submissions, denoted by L
The stronger SU valuation heterogeneity—i.e., the lower δδH —the
L
N
stronger the “good gaming” effects. Under weak valuation hetero-
T = α1 − C1
L jnH1 δ H + jnL 1 δ L .
geneity, the IUs behave truthfully: we have β1 = α1 as long as α1 n=1
H
δ L ≥ jn1 for all n ∈ N . As heterogeneity gets stronger, the num-
δH α1 − jnL 1 At the other extreme, when β1 = C1 , the total expected cost, de-
ber of SUs submitted in Period 1 falls below α1 , up to a point noted by LC , is given by:
where
the IUs submit exactly C1 SUs in Period 1. This occurs if C = (α1 − C1 )δ L
n∈N P L ≥ α1 − C1 . Otherwise, the number of SUs submitted in L
n1
Period 1 remains between C1 and α1 . This result shows that the primary mechanism may—
The total expected costs across all IUs is given by: remarkably—result in the first-best outcome that can be achieved
in the absence of information asymmetry.
⎛ ⎞
α1 − kLm1 − C1 N
This “good gaming” behavior can be observed in several infras-
1
N
tructure domains. In the airport context, it manifests through air-
= ⎝
L
m∈A
jnH1 δ H + ( jnL 1 − kLn1 )δ L ⎠ + kLn1 δ L
α1 − kLm1 n=1 n=1
lines scheduling time-insensitive flights at off-peak periods. This
1
m∈A can be viewed as a means to “protect” time-sensitive flights at
675
peak periods from being rescheduled to off-peak periods at air- Lemma 2. Let S (1 ) and S (2 ) be two
feasible
solutions of all prob-
ports subject to demand management (e.g., busy airports located (1 )
(2 )
lems (S1(n ))n∈N such that Snt = Snt , ∀n ∈ N , t ∈ {1, 2}. We de-
outside the United States); alternatively, this can be viewed as a
means to “protect” time-sensitive flights from high delays at air- note by (S2 )(1 ) and (S2 )(2 ) the versions of Problem (S2 ) when the
ports subject to no demand management interventions (i.e., the submitted schedules are S (1 ) and S (2 ) , respectively. For any optimal
vast majority of US airports). In power and water management, solution S(1 ) ,
u(1 ) of Problem (S2 )(1 ) , there exists an optimal solu-

individuals and companies may respond to resource limitations (1) (2)
tion S(2 ) ,
u (2 ) of Problem (S2 )(2 ) such that Snt = Snt for all
by prioritizing resource-intensive activities that are most urgent
and/or that provide most value, and consequently delaying oth- n ∈ N , for all t ∈ {1, 2}, and vice versa.
Moreover, let us consider two feasible solutions S(1 ) ,
u(1 ) and
ers. Similarly, in computing, users may voluntarily delay less ur-

(1) (2)
gent or less valuable jobs to prioritize more urgent ones. This is S(2 ) ,
u (2 ) of Problem (S2 ) such that Snt = Snt , ∀n ∈ N , ∀t ∈
not to say that primary mechanisms analogous to the one con-
sidered in this paper necessarily induce first-best outcomes; to
{1, 2}. We denote by (S3(n ))(1) and (S3(n ))(2) the correspond-
the contrary, they may still result in discrepancies between capac-
ing
(1)versions of Problem (S3(n )). Then for any optimal solution
S˜ , u˜ (1 ) of all problems (S3(n ))n(1∈N)
, there exists an optimal solu-
ity allocation outcomes and user preferences, in which case some
(1 ) ˜ (2 )
scheduling interventions from the infrastructure manager are still tion S˜ (2 ) , u˜ (2 ) of all problems (S3(n ))n(2∈N
)
such that Sñt = Snt
needed. Nonetheless, “good gaming” behaviors may mitigate the for all n ∈ N , for all t ∈ {1, 2}, and vice versa.
effects of information asymmetry between the users and the in-
frastructure manager by generating utilization schedules that are
We now compute the expected cost borne by each IU n ∈ N , as
closer to users’ true preferences than would be achieved under
a function of the number of SUs it submits in Period 1 (i.e., ln1 )
truthful submissions.
and the total number of SUs submitted in Period 1 by all the other

IUs, denoted by l−n,1 = lm1 . Unlike in the primary mecha-
m∈N ,m=n
5. Secondary mechanism nism, this is not straightforward because Problem (S3(n )) depends
on the number of high-valuation vs. low-valuation SUs preferred
We now turn to the secondary mechanism. Again, we focus and submitted in each period, and on the schedule resulting from
on the case where the system faces local demand-capacity im- the IM interventions. Let ln1 denote the number of SUs from IU
balances, that is, when α1 + α2 ≤ C1 + C2 . Without loss of gener- n scheduled in Period 1 after Problem (S2 ). Then the solution to
ality, we assume that α2 ≤ C2 ; so the system either faces demand- Problem (S3(n )) can be constructed as follows. If ln1 = jn1 , IU n
capacity imbalances in Period 1 or not at all. Results show that does not displace any of its SUs and has a zero cost. If ln1 < jn1 ,
IUs have opportunities to behave strategically, by requesting more IU n needs to displace SUs from Period 1 to Period 2. It displaces
SUs at peak periods than their true preferences. Such strategic low-valuation SUs exclusively, if the number of SUs to be displaced
behaviors increase system-wide expected costs. As discussed in is less than or equal to the number of its low-valuation SUs pre-
Section 6, the secondary mechanism may ultimately yield higher ln1 ≤ jnL 1 , or
ferred in Period 1, i.e., if jn1 − ln1 ≥ jnH1 . Conversely, if
system-wide expected costs than the primary mechanism.
l < j , IU n displaces j low-valuation SUs and jH −
H L l high-
n1 n1 n1 n1 n1
Section 5.1 reduces the three-stage game to an N-player single-
valuation SUs to Period 2. Similarly, if jn1 < ln1 ≤ jn1 + jnL 2 , IU n
stage game. Unlike under the primary mechanism, the IUs’ loss
displaces ln1 − jn1 low-valuation SUs from Period 2 to Period 1,
functions under the secondary mechanism are much more complex
and if ln1 > jn1 + jnL 2 , it displaces jnL 2 low-valuation SUs and ln1 −
to characterize analytically. Therefore, Section 5.2 identifies proper-
jn1 − jnL 2 high-valuation SUs from Period 2 to Period 1. Ultimately,
ties of the Nash equilibrium (or equilibria), and shows that “good
this defines four regions in which the optimal swaps in Problem
gaming” behaviors are not observed under the secondary mech-
(S3(n )) exhibit different properties. This analysis focuses on the
anism. Section 5.3 presents numerical results to characterize the
case where β2 ≤ C2 for simplicity. Any solution such that β2 > C2
Nash equilibria, and discusses resulting system performance. All
is clearly not a Nash equilibrium. We omit the proof for concise-
proofs are reported in Appendix C.
ness.
The loss function of each IU n ∈ N is identified in Lemma 3 in
the four aforementioned regions. In each one, if the submit-
5.1. Identification of loss functions
ted schedule falls under, or equal to, capacity (i.e., ln1 + l−n,1 ≤
We reduce the three-stage game to an N-player simultaneous C1 ), then ln1 = ln1 and IU n faces a deterministic cost that re-
(single-stage) game. We characterize the loss function of each IU flects the difference between its preferred schedule and its sub-
for each combination of first-stage schedule submissions by all IUs, mitted schedule. If jnH1 ≤ ln1 ≤ jn1 + jnL 2 , then IU n can displace
while accounting for the resulting IM scheduling interventions and only low-valuation SUs; so its loss function is given by Ln =
the subsequent SU swaps by the IUs. |ln1 − jn1 |δ L . Otherwise,
it has
to move some high-valuation SUs, so
Ln = jnL 2 δ L + ln1 − jn1 − jnL 2 δ H if ln1 > jn1 + jnL 2 , and Ln = jnL 1 δ L +
First, Lemma 2 shows that the relevant first-stage decision of
each IU is no longer the set of SUs requested in each period t, but jnH1 − ln1 δ H if ln1 < jnH1 .
only the number thereof. This is because, as each IU can swap its If the submitted schedule exceeds capacity in Period 1 (i.e.,
SUs following the IM’s interventions, the relevant outcome of Prob- ln1 + l−n,1 > C1 ), the IM reschedules ln1 + l−n,1 − C1 IUs from Pe-
lem (S2 ) is the number of SUs available to each IU in each period 1 to Period 2—so ln1 ≤ ln1 for all n ∈ N . To formulate the loss
riod, which, itself, depends only on the number of SUs requested function of each IU n ∈ N , the lemma makes use of a side func-
by each IU in each period. In other words, for any IU n ∈ N , all so- tion gJ ln1 , l−n,1 , which denotes the conditional expectation of the
lutions of Problem (S1(n )) are equivalent as long as its aggregate number of SUs displaced in excess of ln1 − J. In other words, let
requested schedule remains unchanged. Therefore, the strategy of k(ln1 , l−n,1 ) be the random variable that corresponds to the num-
each IU n ∈ N is fully determined by ln1 and ln2 . Since we consider ber of SUs of IU n displaced from Period 1 to Period 2 by the IM.
a two-period problem and the strategy of each IU n is constrained Then the function gJ is defined as follows:
by ln1 + ln2 = jn1 + jn2 (Equation (12)), the complete strategy of
each IU n is determined by a single scalar ln1 ∈ {0, · · · , jn1 + jn2 }. gJ (ln1 , l−n,1 ) = E (k(ln1 , l−n,1 ) − ln1 + J | k(ln1 , l−n,1 ) ≥ ln1 − J ).
676
The loss function of each IU n is then expressed by means of Figure 5 shows the loss function Ln of a given IU n, as a func-
gJ . For instance, in Region 3 where jn1 ≤ ln1 ≤ jn1 + jnL 2 , the cost tion of the number of SUs submitted by IU n in Period 1 (i.e.,

to IU n is equal to ln1 − jn1 δ L if jn1 ≤
ln1 , equal to jn1 −
ln1 δ L ln1 , on the x axis) under weak (Figure 5a) and strong (Figure 5b)
SU valuation heterogeneity. Different colors correspond to differ-
if jH ≤ l ≤ j , and equal to jL δ L + jH − l δ H if
l < jH . In
n1 n1 n1
n1 n1 n1 n1 n1
ent strategies by the other IUs. Dotted (resp. solid) curves repre-
n1 δ
C1 L
Equation (23), the term l
ln1 +l−n,1 n1
− j corresponds to sent examples where 6 (resp. 8) SUs are preferred by IU n in Pe-
the expected value of riod 1. Note that the loss function decreases as ln1 increases over
the first of these three expressions, the
term 2δ L g jn1 ln1 , l−n,1 corrects it to account for the second of [0, jn1 ]. This suggests that IU has no incentive to request fewer SUs
than preferred in the peak period. When ln1 ≥ jn1 , the loss function
them
H (which
can only occur if l−n,1 > C1 − jn1 ), and the term
δ − δ L g jH ln1 , l−n,1 corrects it to account for the third of them is not necessarily monotonic. So the loss-minimizing strategy may
n1
sometimes involve requesting strictly larger than jn1 SUs in Period
(which can only occur if l−n,1 > C1 − jnH1 ). The other cases follow a
1, suggesting potential opportunities for strategic behaviors.
similar logic.
Figure 6 shows the best response of IU n, as a function of the
Lemma 3. The function gJ is given as follows, for any value of J ∈ total number of SUs submitted by other players (i.e., l−n,1 , on the
{l−n,1 − C1 , · · · , ln1 }: x axis), for different numbers of SUs preferred by IU n in Period
J−max (C1 −l−n,1 ,0 ) 1 (i.e., jn1 , represented by different colors), and for two extreme
1 l−n,1 ln1 cases of SU valuation heterogeneity corresponding to δδ L = 1.0 0 01
H
gJ (ln1 , l−n,1 ) = ln1 +l−n,1 k×

C1 − J + k J−k (solid lines) and δδ L = 10, 0 0 0 (dashed lines). Note, first, that the
H
C1 k=1
best response function is always non-decreasing in jn1 : the higher
For each IU n, the loss function Ln ln1 , l−n,1 under the secondary the market share of SU n in the peak period, the more SUs it will
mechanism is given by: submit in that period. Second, the best response function is non-
Region 1. ln1 < jnH1 decreasing in l−n,1 : the busier the peak period, the more SUs will
H be requested by the IUs in that period. This is because, under high
If ln1 + l−n,1 ≤ C1 , Ln (ln1 , l−n,1 ) = jnL 1 δ L + jnH1 − ln1 δ (18) demand, it is more likely that the SUs get displaced by the IM from
Period 1 to Period 2, and hence the IUs may bring their result-
ing schedules closer to their true preferences by submitting more
If ln1 + l−n,1 > C1 , Ln (ln1 , l−n,1 ) IUs in the peak period. Third, the effect of SU valuation hetero-
geneity depends on the scheduling conditions. When an IU has a
C1
= jnL 1 δ L + jnH1 − ln1 δH (19) small market share in Period 1, stronger valuation heterogeneity
ln1 + l−n,1 leads to more SUs submitted in Period 1—to minimize the risk of
receiving less than jnH1 SUs in Period 1 and thus having to displace
Region 2. jnH1 ≤ ln1 ≤ jn1
high-valuation SUs from Period 1 to Period 2. In contrast, when the
If ln1 + l−n,1 ≤ C1 , Ln (ln1 , l−n,1 ) = ( jn1 − ln1 )δ L (20) IU has a large market share in Period 1, stronger valuation hetero-
geneity leads to fewer SUs submitted in Period 1—to minimize the
risk of receiving more than jn1 + jnL 2 SUs in Period 1 and thus hav-
C1 ing to displace high-valuation SUs from Period 2 to Period 1. We
If ln1 + l−n,1 > C1 , Ln (ln1 , l−n,1 ) = jn1 − ln1 δL
ln1 + l−n,1 use these results to derive properties of the Nash equilibrium.

+ δ H − δ L g jnH1 (ln1 , l−n,1 )1{l−n,1 >C1 − jnH1 }
(21) 5.2. Properties of nash equilibrium
Region 3. jn1 ≤ ln1 ≤ jn1 + jnL 2 Unlike for the primary mechanism, the Nash equilibrium for
the secondary mechanism is intricate to derive analytically given
If ln1 + l−n,1 ≤ C1 , Ln (ln1 , l−n,1 ) = (ln1 − jn1 )δ L (22)
the complexity of the loss function identified in Lemma 3, and the
lack of attractive properties of the function gJ (e.g., monotonicity in
l−n,1 , convexity). We thus do not fully characterize the Nash equi-
C1
If ln1 + l−n,1 > C1 , Ln (ln1 , l−n,1 ) = ln1 − jn1 δL librium over the entire parameter space. Instead, we identify some
ln1 + l−n,1
of its properties and derive analytical insights into opportunities

+ δ H − δ L g jnH1 (ln1 , l−n,1 )1{l−n,1 >C1 − jnH1 } for strategic behaviors.
Proposition 3 shows that when demand is at most equal to ca-
+ 2δ L g jn1 (ln1 , l−n,1 )1{l−n,1 >C1 − jn1 } (23) pacity in each period, truthful submissions form a Nash equilib-
rium. This is the analog of Proposition 1: like the primary mecha-
Region 4. jn1 + jnL 2 < ln1
nism, the secondary mechanism does not introduce opportunities
H
If ln1 + l−n,1 ≤ C1 , Ln (ln1 , l−n,1 ) = jnL 2 δ L + ln1 − jn1 − jnL 2 δ for strategic behaviors in the absence of demand-capacity imbal-
ances. Thus, again, strategic behaviors can be attributed to such
(24)
imbalances.
If ln1 + l−n,1 > C1 , Ln (ln1 , l−n,1 ) Proposition 3. For α1 ≤ C1 and α2 ≤ C2 , the pure strategy ln∗1 = jn1
for all infrastructure users n ∈ N is a Nash equilibrium under the sec-
C1
= jnL 2 δ L + ln1 − jn1 − jnL 2 δ H ondary mechanism.
ln1 + l−n,1

+ δ H − δ L g jnH1 (ln1 , l−n,1 )1{l−n,1 >C1 − jnH1 } Proposition 4 indicates that, when demand exceeds capacity in
the peak period, the IUs have no incentives to request fewer SUs in
+ 2δ L g jn1 (ln1 , l−n,1 )1{l−n,1 >C1 − jn1 } Period 1 than their true preferences. This stems from the structure
of the loss function (Lemma 3) and from an intermediate result
+ δ H − δ L g jn1 + jnL 2 (ln1 , l−n,1 )1{l−n,1 >C1 − jn1 − jnL 2 } (25)
that the function gJ is non-increasing in ln1 (Lemma 8).
677
Fig. 5. Functional forms of IU n’s loss function (C1 = C2 = 20).
(worst-case) equilibrium for that case. As demand increases, users

have strong incentives for strategic behaviors (rows 3 to 20). In-
deed, there consistently exist Nash equilibria where the IUs sub-
mit strictly more SUs than their true preferences in Period 1. Un-
der weak SU heterogeneity, the IUs actually submit all their SUs
in Period 1 when they are symmetric (rows 3–5, 9–11, 15–17, 22–
24). This is because, when SU valuations are weakly differentiated,
the IUs face small costs even when the IM’s interventions result
in more than jn1 + jnL 2 SUs in Period 1 (in which case they have
to displace some high-valuation SUs from Period 2 to Period 1);
therefore, the IUs aim to maximize their market share in Period
1 by requesting as many IUs as possible. Under strong SU het-
erogeneity, there are instances (rows 3, 4 and 24) under which
the IUs request jn1 + jnL 2 in Period 1. This strategy guarantees that

l ≤ j + jL , thus avoiding the very large costs due to the dis-
Fig. 6. Functional forms of IU n’s best response function (C1 = C2 = 20). n1 n1 n2
placement of high-valuation SUs from Period 2 to Period 1. In other
cases, even with strong SU heterogeneity, all SUs may be submitted
Proposition 4. If α1 > C1 and α1 + α2 ≤ C1 + C2 , then for all infras- in Period 1 (rows 5, 9–17, 21–23) to schedule as many SUs in the
tructure users n ∈ N , any strategy ln1 such that ln1 < jn1 is strictly peak period as possible. Finally, when IUs are asymmetric (rows
dominated under the secondary mechanism and hence is not a part 6–8, 12–14, 18–21), IUs with smaller number of SUs most often
of any Nash equilibrium. behave less strategically than the larger ones. Indeed, the displace-
ment is less likely to be very large for the smaller IUs than for
Proposition 4 establishes a stark contrast between the primary
the larger ones, following the IM’s interventions; so the smaller
and secondary mechanisms. Indeed, the “good gaming” behaviors
IUs instead try to ensure that they will not have to displace high-
identified under the primary mechanism (Proposition 2) are no
valuation SUs from Period 2 to Period 1. Stated differently, larger
longer part of any Nash equilibrium under the secondary mecha-
IUs benefit more from the higher degrees of flexibility under the
nism. Instead, the Nash equilibrium strategy (ln1 ) of any IU n under
secondary mechanism, resulting in more strategic behaviors.
the secondary mechanism is contained within [ jn1 , jn1 + jn2 ], i.e.,
Therefore, the secondary mechanism creates strategic incen-
each IU submits at least its preferred number of SUs in the peak
tives to request more SUs in the peak period than preferred. As
period. Therefore, any strategic behavior will result in as many or
we shall see later, these behaviors increase system-wide expected
more SUs requested in the peak period than the IUs’ true pref-
costs. These results underscore the trade-off associated with the
erences. This may create instances of “bad gaming”, i.e., strategic
secondary mechanism. On the one hand, secondary swaps enable
behaviors that impose a cost on the other players and, potentially,
IUs to prioritize the displacement of low-valuation SUs (over high-
on the system as a whole.
valuation SUs) from their preferred period any time the sched-
ule of utilization does not match their preferences. But the sec-
5.3. Discussion of equilibrium under the secondary mechanism
ondary mechanism also leads to strategic behaviors, which can re-
sult in more SUs being requested at peak periods than preferred
Table 2 shows Nash equilibria under the secondary mecha-
and in higher expected system-wide costs. As we shall see next,
nism. We consider instances with C1 = C2 = 20, 2 or 4 IUs, in-
the net impact of these two effects may be negative: the increase
creasing numbers of SUs, and two extreme cases of SU valuation
in system-wide costs due to IUs’ strategic behaviors may offset
heterogeneity. We identify the Nash equilibria computationally by
the benefits of schedule swaps—resulting in potentially higher ex-
exhaustive search. When multiple equilibria exist, we report the
pected costs than under the primary mechanism.
worst-case one, that is, the one with the highest expected system-
wide cost.
The table confirms the result from Proposition 3 that truthful 6. Performance assessment
submissions form a Nash equilibrium under low demand (Row 1).
In Row 2, truthful submissions also form a Nash equilibrium as We now compare the primary and secondary mechanisms
per Proposition 3, but this equilibrium is not unique with strong numerically. Tables 3 and 4 detail our experimental setup.
SU valuation heterogeneity; hence, Table 2 reports the non-truthful We consider two IUs and a capacity of 20 SUs per period.
678
Table 2
Nash equilibria under the secondary mechanism with C1 = C2 = 20 on a sample of instances.
δ H = 1.0 0 01 δ H = 10, 0 0 0
δL δL
∗ ∗ ∗ ∗
ID N α1 α2 jnL 1
n
jnH1
n
jnL 2
n
jnH2
n
ln1
n
ln2
n
ln1
n
ln2
n
1 2 18 8 (5,5) (4,4) (2,2) (2,2) (9,9) (4,4) (9,9) (4,4)

2 2 20 8 (5,5) (5,5) (2,2) (2,2) (10,10) (4,4) (12,12) (2,2)
3 2 22 8 (6,6) (5,5) (2,2) (2,2) (15,15) (0,0) (13,13) (2,2)
4 2 22 8 (10,10) (1,1) (2,2) (2,2) (15,15) (0,0) (13,13) (2,2)
5 2 22 8 (1,1) (10,10) (2,2) (2,2) (15,15) (0,0) (15,15) (0,0)
6 2 22 8 (9,2) (9,2) (2,2) (2,2) (22,5) (0,3) (22,6) (0,2)
7 2 22 8 (14,2) (4,2) (2,2) (2,2) (22,5) (0,3) (22,6) (0,2)
8 2 22 8 (4,2) (14,2) (2,2) (2,2) (22,5) (0,3) (22,6) (0,2)
9 2 26 12 (7,7) (6,6) (3,3) (3,3) (19,19) (0,0) (19,19) (0,0)
10 2 26 12 (12,12) (1,1) (3,3) (3,3) (19,19) (0,0) (19,19) (0,0)
11 2 26 12 (1,1) (12,12) (3,3) (3,3) (19,19) (0,0) (19,19) (0,0)
12 2 22 16 (11,3) (11,3) (3,3) (3,3) (28,11) (0,1) (28,12) (0,0)
13 2 22 16 (18,3) (4,3) (3,3) (3,3) (28,11) (0,1) (28,12) (0,0)
14 2 22 16 (4,3) (18,3) (3,3) (3,3) (28,11) (0,1) (28,12) (0,0)
15 2 30 8 (8,8) (7,7) (2,2) (2,2) (19,19) (0,0) (19,19) (0,0)
16 2 30 8 (1,1) (14,14) (2,2) (2,2) (19,19) (0,0) (19,19) (0,0)
17 2 30 8 (14,14) (1,1) (2,2) (2,2) (19,19) (0,0) (19,19) (0,0)
18 2 30 8 (13,2) (13,2) (2,2) (2,2) (30,7) (0,1) (30,7) (0,1)
19 2 30 8 (22,2) (4,2) (2,2) (2,2) (30,7) (0,1) (30,7) (0,1)
20 2 30 8 (4,2) (22,2) (2,2) (2,2) (30,7) (0,1) (30,7) (0,1)
21 4 22 12 (3,3,2,2) (3,3,3,3) (2,2,2,2) (1,1,1,1) (9,9,8,8) (0,0,0,0) (9,9,8,8) (0,0,0,0)
22 4 24 12 (3,3,3,3) (3,3,3,3) (2,2,2,2) (1,1,1,1) (9,9,9,9) (0,0,0,0) (9,9,9,9) (0,0,0,0)
23 4 24 12 (1,1,1,1) (5,5,5,5) (2,2,2,2) (1,1,1,1) (9,9,9,9) (0,0,0,0) (9,9,9,9) (0,0,0,0)
24 4 24 12 (5,5,5,5) (1,1,1,1) (2,2,2,2) (1,1,1,1) (9,9,9,9) (0,0,0,0) (8,8,8,8) (1,1,1,1)
Each IU has two high-valuation SUs and two low-valuation • Under weak SU valuation heterogeneity, the costs of strategic be-
SUs that are preferred in Period 2 (hence, 8 SUs are pre- haviors under the secondary mechanism outweigh the benefits of
ferred to be scheduled in Period 2). We vary the inputs along swaps (rows 2–7). Recall from Proposition 2 that SUs behave
four dimensions: (i) SU valuation heterogeneity, characterized by truthfully under the primary mechanism when SU valuations
δ H ∈ {1.0 0 01, 1.5, 2.5, 5, 10, 0 0 0}; (ii) demand-capacity imbalances, are weakly differentiated. Due to the information asymmetry,
δL
characterized by α1 ∈ {22, 24, 26, 28, 30}; (iii) whether the two IUs the IM may therefore displace some high-valuation SUs from
are symmetric or not; and (iv) the balance between high-valuation the peak period (Period 1) to the off-peak period (Period 2).
and low-valuation SUs. Note that the number of input combina- The secondary mechanism, in contrast, induces strong strategic
tions along multiple dimensions grows exponentially with increas- behaviors—which can lead to outcomes that are even more in-
ing granularity of input parameters. Our setup provides flexibility consistent with IU preferences following the IM interventions
to vary all major parameters along the four dimensions. To retain (e.g., more SUs than preferred in Period 1 for one IU, and fewer
tractability and keep the length of our computational experiments ones for the other IU). That said, the secondary mechanism al-
manageable, we consider a coarse discretization. As a result, the lows swaps following the IM interventions, but, since IUs are
experiments capture a subset of all possible combinations of in- relatively indifferent regarding which SUs to maintain in the
put parameters. Yet, this setup enables us to derive insights on the peak period (Period 1), the benefits of such secondary swaps
relative performance of the two mechanisms, and to identify the are low. Consequently, the expected system-wide costs under
impact of the key parameters. To establish the robustness of our the secondary mechanism are consistently higher than those
findings, we also extend our computational results to more SU val- under the primary mechanism (even though secondary swaps
uation heterogeneity and more time periods in the next section. might lower the expected costs for the IU with the smaller mar-
Tables 5 and 6 reports the Nash equilibrium under each mech- ket share (rows 5–7)).
anism in each of the 103 instances defined in Tables 3 and 4. To • Under intermediate SU valuation heterogeneity, the IUs benefit
derive these equilibria, we perform exhaustive search; when mul- from the secondary swaps while the primary mechanism might
tiple Nash equilibria exist, we report the worst-case one (in terms not necessarily induce “good gaming” (rows 8 to 97). Under the
of expected system-wide cost). For each mechanism, the tables list primary mechanism, the incentives for “good gaming” may not
the expected cost borne by each IU (L∗1 and L∗2 ), and the expected be strong enough to prevent IUs from requesting more SUs
system-wide cost (L ∗ ). For each metric, we highlight in bold its than capacity in Period 1. Again, the IM displaces some high-
smaller value across the two mechanisms. The table also reports valuation SUs from Period 1 to Period 2 with positive prob-
the first-best outcome, denoted by LF B . ability. The secondary mechanism can mitigate these effects
As expected, when demand falls strictly under capacity in each through secondary swaps—albeit at the cost of “bad gaming”
period, neither mechanism induces strategic behaviors and the ex- strategic behaviors. Ultimately, the secondary mechanism re-
pected cost borne by each player is zero (row 1). When demand sults in lower expected system-wide costs than the primary
exceeds capacity in Period 1, in contrast, both mechanisms induce mechanism in 31 out of the 90 test instances reported in rows
different equilibria. 8 to 97.
First and foremost, the effect of SU valuation heterogeneity is • Under strong SU valuation heterogeneity, the primary mechanism
not monotonic: the primary mechanism dominates under weak induces “good gaming”, achieving first-best outcomes (rows 98 to
and strong SU valuation heterogeneity, while the secondary mech- 103). Indeed, IUs displace as many low-valuation SUs as nec-
anism may dominate under moderate SU valuation heterogeneity. essary to “protect” high-valuation SUs. So the number of SUs

This can be explained as follows: requested in period 1, β1 , is equal to capacity, C1 , if N L
n=1 jn1 ≥
α1 − C1 (i.e., if the number of low-valuation SUs preferred in
679
Table 3
Sample inputs under both mechanisms with two IUs and C1 = C2 = 20 (first half: rows 1-52).
Period 1 Period 2
ID α1 α2 δH L
j11 L
j21 H
j11 H
j21 L
j12 L
j22 H
j12 H
j22 Imbalances IUs symmetric? Balance of SUs
δL
1 18 8 any 5 5 4 4 2 2 2 2 no yes balanced SU valuations

2 26 8 1.0001 12 12 1 1 2 2 2 2 moderate yes mainly low-valuation SUs
3 26 8 1.0001 7 7 6 6 2 2 2 2 moderate yes balanced SU valuations
4 26 8 1.0001 1 1 12 12 2 2 2 2 moderate yes mainly high-valuation SUs
5 26 8 1.0001 20 2 2 2 2 2 2 2 moderate no mainly low-valuation SUs
6 26 8 1.0001 11 2 11 2 2 2 2 2 moderate no balanced SU valuations
7 26 8 1.0001 2 2 20 2 2 2 2 2 moderate no mainly high-valuation SUs
8 22 8 1.5 10 10 1 1 2 2 2 2 very low yes mainly low-valuation SUs
9 22 8 1.5 6 6 5 5 2 2 2 2 very low yes balanced SU valuations
10 22 8 1.5 1 1 10 10 2 2 2 2 very low yes mainly high-valuation SUs
11 22 8 1.5 16 2 2 2 2 2 2 2 very low no mainly low-valuation SUs
12 22 8 1.5 9 2 9 2 2 2 2 2 very low no balanced SU valuations
13 22 8 1.5 2 2 16 2 2 2 2 2 very low no mainly high-valuation SUs
14 24 8 1.5 11 11 1 1 2 2 2 2 low yes mainly low-valuation SUs
15 24 8 1.5 7 7 5 5 2 2 2 2 low yes balanced SU valuations
16 24 8 1.5 1 1 11 11 2 2 2 2 low yes mainly high-valuation SUs
17 24 8 1.5 18 2 2 2 2 2 2 2 low no mainly low-valuation SUs
18 24 8 1.5 10 2 10 2 2 2 2 2 low no balanced SU valuations
19 24 8 1.5 2 2 18 2 2 2 2 2 low no mainly high-valuation SUs
26 28 8 1.5 13 13 1 1 2 2 2 2 high yes mainly low-valuation SUs
27 28 8 1.5 8 8 6 6 2 2 2 2 high yes balanced SU valuations
28 28 8 1.5 1 1 13 13 2 2 2 2 high yes mainly high-valuation SUs
29 28 8 1.5 22 2 2 2 2 2 2 2 high no mainly low-valuation SUs
30 28 8 1.5 12 2 12 2 2 2 2 2 high no balanced SU valuations
31 28 8 1.5 2 2 22 2 2 2 2 2 high no mainly high-valuation SUs
32 30 8 1.5 14 14 1 1 2 2 2 2 very high yes mainly low-valuation SUs
33 30 8 1.5 8 8 7 7 2 2 2 2 very high yes balanced SU valuations
34 30 8 1.5 1 1 14 14 2 2 2 2 very high yes mainly high-valuation SUs
35 30 8 1.5 24 2 2 2 2 2 2 2 very high no mainly low-valuation SUs
36 30 8 1.5 13 2 13 2 2 2 2 2 very high no balanced SU valuations
37 30 8 1.5 2 2 24 2 2 2 2 2 very high no mainly high-valuation SUs
38 22 8 2.5 10 10 1 1 2 2 2 2 very low yes mainly low-valuation SUs
39 22 8 2.5 6 6 5 5 2 2 2 2 very low yes balanced SU valuations
40 22 8 2.5 1 1 10 10 2 2 2 2 very low yes mainly high-valuation SUs
41 22 8 2.5 16 2 2 2 2 2 2 2 very low no mainly low-valuation SUs
42 22 8 2.5 9 2 9 2 2 2 2 2 very low no balanced SU valuations
43 22 8 2.5 2 2 16 2 2 2 2 2 very low no mainly high-valuation SUs
44 24 8 2.5 11 11 1 1 2 2 2 2 low yes mainly low-valuation SUs
45 24 8 2.5 7 7 5 5 2 2 2 2 low yes balanced SU valuations
46 24 8 2.5 1 1 11 11 2 2 2 2 low yes mainly high-valuation SUs
47 24 8 2.5 18 2 2 2 2 2 2 2 low no mainly low-valuation SUs
48 24 8 2.5 10 2 10 2 2 2 2 2 low no balanced SU valuations
49 24 8 2.5 2 2 18 2 2 2 2 2 low no mainly high-valuation SUs

N δ H = 1.5 and δ H = 2.5 lead to the same requests from the IUs;
Period 1 is sufficient); otherwise, β1 = jnH1 (i.e., IUs displace δL δL
n=1 between these the benefits of the secondary swaps are higher
all their low-valuation SUs). The secondary mechanism is still when SU valuation heterogeneity is stronger (row 39 vs. row 9).
prone to “bad gaming”, i.e., β1 > α1 , and the combination of However, moving from δδ L = 2.5 to δδ L = 5, the primary mech-
H H
IM interventions and secondary swaps can lead to strictly more anism induces “good gaming”, making the primary mechanism
high-valuation SUs being displaced to Period 2 than necessary— more attractive (row 69 vs. row 39). Similar dynamics are observed
causing higher expected costs than under the primary mecha- in rows 23, 53 and 83, and in rows 35, 65, and 95. These re-
nism. sults reinforce the main insight in this paper: holding the IU re-
quests constant, secondary swaps can provide benefits, which in-
We now detail the outcomes of the primary versus secondary crease with SU valuation heterogeneity; however, the combina-
mechanisms under intermediate SU valuation heterogeneity (rows tion of “good gaming” under primary mechanism and “bad gam-
8 to 97). Within this broad category, we still observe the non- ing” under secondary mechanism results, in many instances, in
monotonic effect of SU valuation heterogeneity. For instance, let higher expected costs under the secondary than under the primary
us compare rows 9, 39 and 69: for a given set of inputs, the mechanism.
primary mechanism dominates when δδ L = 1.5 and when δδ L = 5,
H H
We now discuss the effects of the other inputs. Given the rich
but the secondary mechanism dominates when δδ L = 2.5. Indeed,
H
interactions between the different parameters, the impact of the
680
Table 4
Sample inputs under both mechanisms with two IUs and C1 = C2 = 20 (second half: rows 53-103).
Period 1 Period 2
ID α1 α2 δH L
j11 L
j21 H
j11 H
j21 L
j12 L
j22 H
j12 H
j22 Imbalances IUs symmetric? Balance of SUs
δL

56 28 8 2.5 13 13 1 1 2 2 2 2 high yes mainly low-valuation SUs
57 28 8 2.5 8 8 6 6 2 2 2 2 high yes balanced SU valuations
58 28 8 2.5 1 1 13 13 2 2 2 2 high yes mainly high-valuation SUs
59 28 8 2.5 22 2 2 2 2 2 2 2 high no mainly low-valuation SUs
60 28 8 2.5 12 2 12 2 2 2 2 2 high no balanced SU valuations
61 28 8 2.5 2 2 22 2 2 2 2 2 high no mainly high-valuation SUs
62 30 8 2.5 14 14 1 1 2 2 2 2 very high yes mainly low-valuation SUs
63 30 8 2.5 8 8 7 7 2 2 2 2 very high yes balanced SU valuations
64 30 8 2.5 1 1 14 14 2 2 2 2 very high yes mainly high-valuation SUs
65 30 8 2.5 24 2 2 2 2 2 2 2 very high no mainly low-valuation SUs
66 30 8 2.5 13 2 13 2 2 2 2 2 very high no balanced SU valuations
67 30 8 2.5 2 2 24 2 2 2 2 2 very high no mainly high-valuation SUs
68 22 8 5 10 10 1 1 2 2 2 2 very low yes mainly low-valuation SUs
69 22 8 5 6 6 5 5 2 2 2 2 very low yes balanced SU valuations
70 22 8 5 1 1 10 10 2 2 2 2 very low yes mainly high-valuation SUs
71 22 8 5 16 2 2 2 2 2 2 2 very low no mainly low-valuation SUs
72 22 8 5 9 2 9 2 2 2 2 2 very low no balanced SU valuations
73 22 8 5 2 2 16 2 2 2 2 2 very low no mainly high-valuation SUs
74 24 8 5 11 11 1 1 2 2 2 2 low yes mainly low-valuation SUs
75 24 8 5 7 7 5 5 2 2 2 2 low yes balanced SU valuations
76 24 8 5 1 1 11 11 2 2 2 2 low yes mainly high-valuation SUs
77 24 8 5 18 2 2 2 2 2 2 2 low no mainly low-valuation SUs
78 24 8 5 10 2 10 2 2 2 2 2 low no balanced SU valuations
79 24 8 5 2 2 18 2 2 2 2 2 low no mainly high-valuation SUs
80 26 8 5 12 12 1 1 2 2 2 2 moderate yes mainly low-valuation SUs
81 26 8 5 7 7 6 6 2 2 2 2 moderate yes balanced SU valuations
82 26 8 5 1 1 12 12 2 2 2 2 moderate yes mainly high-valuation SUs
83 26 8 5 20 2 2 2 2 2 2 2 moderate no mainly low-valuation SUs
84 26 8 5 11 2 11 2 2 2 2 2 moderate no balanced SU valuations
85 26 8 5 2 2 20 2 2 2 2 2 moderate no mainly high-valuation SUs
86 28 8 5 13 13 1 1 2 2 2 2 high yes mainly low-valuation SUs
87 28 8 5 8 8 6 6 2 2 2 2 high yes balanced SU valuations
88 28 8 5 1 1 13 13 2 2 2 2 high yes mainly high-valuation SUs
89 28 8 5 22 2 2 2 2 2 2 2 high no mainly low-valuation SUs
90 28 8 5 12 2 12 2 2 2 2 2 high no balanced SU valuations
91 28 8 5 2 2 22 2 2 2 2 2 high no mainly high-valuation SUs
92 30 8 5 14 14 1 1 2 2 2 2 very high yes mainly low-valuation SUs
93 30 8 5 8 8 7 7 2 2 2 2 very high yes balanced SU valuations
94 30 8 5 1 1 14 14 2 2 2 2 very high yes mainly high-valuation SUs
95 30 8 5 24 2 2 2 2 2 2 2 very high no mainly low-valuation SUs
96 30 8 5 13 2 13 2 2 2 2 2 very high no balanced SU valuations
97 30 8 5 2 2 24 2 2 2 2 2 very high no mainly high-valuation SUs
98 26 8 10,000 12 12 1 1 2 2 2 2 moderate yes mainly low-valuation SUs
99 26 8 10,000 7 7 6 6 2 2 2 2 moderate yes balanced SU valuations
100 26 8 10,000 1 1 12 12 2 2 2 2 moderate yes mainly high-valuation SUs
101 26 8 10,000 20 2 2 2 2 2 2 2 moderate no mainly low-valuation SUs
102 26 8 10,000 11 2 11 2 2 2 2 2 moderate no balanced SU valuations
103 26 8 10,000 2 2 20 2 2 2 2 2 moderate no mainly high-valuation SUs
different inputs are not necessarily monotonic—and one could find centration. As a result, when IUs are asymmetric, the one
a few exceptions to the takeaways listed below. Still, broadly the with the larger market share is more likely to voluntarily
following trends emerge: displace its own low-valuation SUs from Period 1 to Pe-
1. The primary mechanism is more attractive with weaker riod 2 under the primary mechanism—inducing lower ex-
demand-capacity imbalances (e.g., row 10 vs. row 22; row pected system-wide costs. One exception in Table 5 is in
38 vs. row 50). This might seem surprising, since higher comparing rows 38 vs. 41. Here, valuation heterogeneity is
demand-capacity imbalances induce stronger “good gam- too weak to incentivize “good gaming”, both in the symmet-
ing” under the primary mechanism (Proposition 2). Yet, ric case (row 38) and in the asymmetric case (row 41). Then,
when demand-capacity imbalances are stronger, it is also the secondary swaps are more beneficial to the larger IU in
more likely that more SUs will be requested in Period 1, the asymmetric case, resulting in lower expected costs. But
and thus displaced to Period 2 by the IM under the pri- overall, asymmetric IUs make “good gaming” more likely un-
mary mechanism—thus increasing the likelihood that high- der the primary mechanism. Interestingly, the larger IU may
valuation SUs will be displaced to Period 2. be worse off under the primary mechanism than under the
2. The primary mechanism is more attractive with asymmetric IUs secondary mechanism (e.g., rows 24, 36): the larger IU suf-
than with symmetric IUs (e.g., rows 17–19 vs. 14–16). This is fers a loss from its own “good gaming” behaviors under the
because “good gaming” behaviors increase with market con- primary mechanism (despite reducing the expected system-
681
Table 5
Nash equilibria under both mechanisms with two IUs and C1 = C2 = 20 (first half: rows 1-52).
Primary mechanism Secondary mechanism
ID ∗
l11 ∗
l21 ∗
l12 ∗
l22 Gaming L∗1 L∗2 ∗
L ∗
l11 ∗
l21 ∗
l12 ∗
L LF B
1 9 9 4 4 none 0 0 0 9 9 4 4 none 0 0 0 0
2 13 13 4 4 none 3.00 3.00 6.00 17 17 0 0 “bad” 3.01 3.01 6.02 6.00
3 13 13 4 4 none 3.00 3.00 6.00 17 17 0 0 “bad” 3.01 3.01 6.02 6.00
4 13 13 4 4 none 3.00 3.00 6.00 17 17 0 0 “bad” 3.01 3.01 6.02 6.00
5 22 4 4 4 none 5.08 0.92 6.00 26 6 0 2 “bad” 5.75 0.83 6.58 6.00
6 22 4 4 4 none 5.08 0.92 6.00 26 6 0 2 “bad” 5.75 0.83 6.58 6.00
7 22 4 4 4 none 5.08 0.92 6.00 26 6 0 2 “bad” 5.75 0.83 6.58 6.00
8 11 11 4 4 none 1.05 1.05 2.10 15 15 0 0 “bad” 1.30 1.30 2.60 2.00
9 11 11 4 4 none 1.23 1.23 2.46 15 15 0 0 “bad” 1.30 1.30 2.60 2.00
10 11 11 4 4 none 1.45 1.45 2.90 15 15 0 0 “bad” 1.55 1.55 3.10 2.00
11 18 4 4 4 none 1.73 0.45 2.18 22 5 0 3 “bad” 1.72 0.68 2.40 2.00
12 16 4 6 4 “good” 2.00 0 2.00 22 5 0 3 “bad” 1.72 0.68 2.40 2.00
13 16 4 6 4 “good” 2.00 0 2.00 22 5 0 3 “bad” 1.82 0.68 2.50 2.00
14 12 12 4 4 none 2.08 2.08 4.16 16 16 0 0 “bad” 2.07 2.07 4.14 4.00
15 12 12 4 4 none 2.42 2.42 4.84 16 16 0 0 “bad” 2.07 2.07 4.14 4.00
16 12 12 4 4 none 2.92 2.92 5.84 16 16 0 0 “bad” 2.66 2.66 5.32 5.00
17 20 4 4 4 none 3.50 0.83 4.33 24 6 0 2 “bad” 4.00 0.79 4.79 4.00
18 16 4 8 4 “good” 4.00 0 4.00 24 6 0 2 “bad” 4.00 0.79 4.79 4.00
19 18 4 8 4 “good” 4.45 0.45 4.90 24 6 0 2 “bad” 5.00 0.79 5.79 4.00
20 13 13 4 4 none 3.11 3.11 6.13 17 17 0 0 “bad” 3.01 3.01 6.02 6.00
21 13 13 4 4 none 3.70 3.70 7.40 17 17 0 0 “bad” 3.01 3.01 6.03 6.00
22 13 13 4 4 none 4.38 4.38 8.77 17 17 0 0 “bad” 4.04 4.04 8.08 8.00
23 22 4 4 4 none 5.31 1.15 6.46 26 6 0 2 “bad” 5.75 0.84 6.59 6.00
24 16 4 10 4 “good” 6.00 0 6.00 26 6 0 2 “bad” 5.75 0.84 6.59 6.00
25 20 4 6 4 “good” 7.00 0.83 7.83 26 6 0 2 “bad” 7.63 0.84 8.47 6.00
26 14 14 4 4 none 4.14 4.14 8.28 18 18 0 0 “bad” 4.00 4.00 8.00 8.00
27 14 14 4 4 none 4.86 4.86 9.72 17 17 0 0 “bad” 4.00 4.00 8.00 8.00
28 14 14 4 4 none 5.86 5.86 11.72 18 18 0 0 “bad” 5.51 5.51 11.02 11.00
29 24 4 4 4 none 7.14 1.43 8.57 28 7 0 1 “bad” 8.00 0.91 8.91 8.00
30 16 4 12 4 “good” 8.00 0 8.00 28 7 0 1 “bad” 8.00 0.91 8.91 8.00
31 22 4 6 4 “good” 9.62 1.15 10.77 28 7 0 1 “bad” 11.00 0.91 11.91 10.00
32 15 15 4 4 none 5.17 5.17 10.34 19 19 0 0 “bad” 5.00 5.00 10.00 6.00
33 15 15 4 4 none 6.17 6.17 12.33 19 19 0 0 “bad” 5.00 5.00 10.01 6.00
34 15 15 4 4 none 7.33 7.33 14.66 19 19 0 0 “bad” 7.00 7.00 14.00 14.00
35 26 4 4 4 none 9.00 1.67 10.67 30 7 0 1 “bad” 9.78 0.94 10.73 10.00
36 16 4 14 4 “good” 10.00 0 10.00 30 7 0 1 “bad” 9.78 0.94 10.73 10.00
37 24 4 6 4 “good” 12.28 1.43 13.71 30 7 0 1 “bad” 13.68 0.94 14.62 13.00
38 11 11 4 4 none 1.13 1.13 2.27 15 15 0 0 “bad” 1.30 1.30 2.61 2.00
39 11 11 4 4 none 1.68 1.68 3.36 15 15 0 0 “bad” 1.30 1.30 2.61 2.00
40 10 10 5 5 “good” 1.00 1.00 2.00 15 15 0 0 “bad” 2.05 2.05 4.11 2.00
41 18 4 4 4 none 1.91 0.64 2.55 22 5 0 3 “bad” 1.72 0.69 2.42 2.00
42 16 4 6 4 “good” 2.00 0 2.00 22 5 0 3 “bad” 1.72 0.70 2.42 2.00
43 16 4 6 4 “good” 2.00 0 2.00 22 5 0 3 “bad” 2.01 0.69 2.70 2.00
44 12 12 4 4 none 2.25 2.25 4.50 16 16 0 0 “bad” 2.07 2.07 4.14 4.00
45 12 12 4 4 none 3.25 3.25 6.50 16 16 0 0 “bad” 2.07 2.07 4.14 4.00
46 11 11 5 5 “good” 3.50 3.50 7.00 16 16 0 0 “bad” 3.84 3.84 7.68 4.00
47 20 4 4 4 none 3.83 1.16 4.99 24 6 0 2 “bad” 4.00 0.79 4.79 4.00
48 16 4 8 4 “good” 4.00 0 4.00 24 6 0 2 “bad” 4.00 0.79 4.79 4.00
49 18 4 8 4 “good” 6.09 0.64 4.90 24 6 0 2 “bad” 7.01 0.80 7.81 4.00
50 13 13 4 4 none 3.35 3.35 6.70 17 17 0 0 “bad” 3.01 3.01 6.02 2.00
51 13 13 4 4 none 5.07 5.07 10.15 17 17 0 0 “bad” 3.01 3.01 6.03 2.00
52 12 12 5 5 “good” 6.00 6.00 12.00 17 17 0 0 “bad” 6.09 6.09 12.18 12.00
wide costs), while it benefits from swapping opportunities Figure 7 summarizes these observations by showing the regions
under the secondary mechanism. where the secondary mechanism results in lower expected system-
3. The primary mechanism is more attractive with a higher frac- wide costs than the primary mechanism, as a function of demand-
tion of high-valuation SUs (e.g., row 42 vs. 41; row 52 vs. 51; capacity imbalances (on the y axis), SU valuation heterogeneity (on
row 69 vs. 68). This, again, stems from the fact that more the x axis), whether the IUs are symmetric or not (Figure 7a), and
high-valuation SUs strengthen the “good gaming” incentives what fraction of SUs have a low or a high valuation (Figure 7b).
under the primary mechanism (Proposition 2). One excep- In summary, the secondary mechanism does not necessarily
tion in Table 5 is in rows 38 versus 39. Here, valuation het- provide benefits, as compared to the primary mechanism. Instead,
erogeneity is too weak to incentivize “good gaming”; so the our results highlight instances where the expected system-wide
Nash equilibrium is identical when most SUs have a low val- costs are higher under the secondary mechanism despite the flex-
uation (row 38) and when there are similar numbers of low- ibility of secondary swaps—due to the adverse strategic behav-
valuation and high-valuation SUs (row 39). In the latter case, iors. Moreover, our results identify conditions under which the sec-
it is more likely that high-valuation SUs will be displaced by ondary mechanism is more likely than the primary mechanism to
the IM; so the IUs benefit more from the secondary swaps. lead to higher expected costs. All else equal, the primary mecha-
When the proportion of high-valuation SUs increases further nism dominates the secondary mechanism when SU valuation het-
(row 40), then the primary mechanism dominates the sec- erogeneity is weak enough (so the benefits of secondary swaps
ondary mechanism due to the IUs’ “good gaming” behaviors. are limited) or strong enough (so the IUs voluntarily displace their
682
Table 6
Nash equilibria under both mechanisms with two IUs and C1 = C2 = 20 (second half: rows 53-103).
Primary mechanism Secondary mechanism
ID ∗
l11 ∗
l21 ∗
l12 ∗
L ∗
l11 ∗
l21 ∗
l12 ∗
L LF B
53 22 4 4 4 none 5.77 1.61 7.38 26 6 0 2 “bad” 5.75 0.86 6.61 6.00

54 16 4 10 4 “good” 6.00 0 6.00 26 6 0 2 “bad” 5.75 0.86 6.61 6.00
55 20 4 6 4 “good” 10.33 1.17 11.50 26 6 0 2 “bad” 11.38 0.86 12.24 9.00
56 14 14 4 4 none 4.43 4.43 8.86 18 18 0 0 “bad” 4.00 4.00 8.00 8.00
57 14 14 4 4 none 6.57 6.57 13.14 17 17 0 0 “bad” 4.00 4.00 8.00 8.00
58 13 13 5 5 “good” 8.50 8.50 17.00 18 18 0 0 “bad” 8.52 8.52 17.04 8.00
59 24 4 4 4 none 7.71 2.00 9.71 28 7 0 1 “bad” 8.00 0.94 8.94 8.00
60 16 4 12 4 “good” 8.00 0 8.00 28 7 0 1 “bad” 8.00 0.94 8.94 8.00
61 22 4 6 4 “good” 14.69 1.62 16.31 28 7 0 1 “bad” 17.00 0.94 17.94 8.00
62 15 15 4 4 none 5.50 5.50 11.00 19 19 0 0 “bad” 5.00 5.00 10.00 10.00
63 15 15 4 4 none 8.50 8.50 17.00 19 19 0 0 “bad” 5.02 5.02 10.04 10.00
64 14 14 5 5 “good” 11.00 11.00 22.00 19 19 0 0 “bad” 11.00+ε 11.00+ε 22.00+ε 22.00
65 26 4 4 4 none 9.67 2.33 12 30 7 0 1 “bad” 9.78 0.98 10.76 10.00
66 16 4 14 4 “good” 10.00 0 10.00 30 7 0 1 “bad” 9.78 0.98 10.76 10.00
67 24 4 6 4 “good” 19.14 2 21.14 30 7 0 1 “bad” 21.46 0.98 22.44 19.00
68 11 11 4 4 none 1.36 1.36 2.72 15 15 0 0 “bad” 1.31 1.31 2.62 2.00
69 10 10 5 5 “good” 1.00 1.00 2.00 15 15 0 0 “bad” 1.31 1.31 2.62 2.00
70 10 10 5 5 “good” 1.00 1.00 2.00 15 15 0 0 “bad” 3.31 3.31 6.62 2.00
71 16 4 6 4 “good” 2.00 0 2.00 22 5 0 3 “bad” 1.72 0.72 2.44 2.00
72 16 4 6 4 “good” 2.00 0 2.00 22 5 0 3 “bad” 1.72 0.72 2.44 2.00
73 16 4 6 4 “good” 2.00 0 2.00 22 5 0 3 “bad” 2.49 0.72 3.21 2.00
74 12 12 4 4 none 2.67 2.67 5.34 16 16 0 0 “bad” 2.07 2.07 4.14 4.00
75 10 10 6 6 “good” 2.00 2.00 4.00 16 16 0 0 “bad” 2.07 2.07 4.14 4.00
76 11 11 5 5 “good” 6.00 6.00 12.00 16 16 0 0 “bad” 6.78 6.78 13.56 4.00
77 16 4 8 4 “good” 4.00 0 4.00 24 6 0 2 “bad” 4.00 0.82 4.82 4.00
78 16 4 8 4 “good” 4.00 0 4.00 24 6 0 2 “bad” 4.00 0.82 4.82 4.00
79 18 4 8 4 “good” 10.18 1.09 11.27 24 6 0 2 “bad” 12.04 0.82 12.86 4.00
80 13 13 4 4 none 3.92 3.92 7.84 17 17 0 0 “bad” 3.01 3.01 6.02 6.00
81 10 10 7 7 “good” 3.00 3.00 6.00 17 17 0 0 “bad” 3.01 3.01 6.02 6.00
82 12 12 5 5 “good” 11.00 11.00 22.00 17 17 0 0 “bad” 11.20 11.20 2.60 22.00
83 16 4 10 4 “good” 6.00 0 6.00 26 6 0 2 “bad” 5.75 0.91 6.66 6.00
84 16 4 10 4 “good” 6.00 0 6.00 26 6 0 2 “bad” 5.75 0.91 6.66 6.00
85 20 4 6 4 “good” 18.67 2 20.67 26 6 0 2 “bad” 20.75 0.91 21.66 14.00
86 14 14 4 4 none 5.14 5.14 10.28 18 18 0 0 “bad” 4.00+ 4.00+ 8.00+ 8.00
87 10 10 8 8 “good” 4.00 4.00 8.00 17 17 0 0 “bad” 4.00+ 4.00+ 8.00+ 8.00
88 13 13 5 5 “good” 16.00 16.00 32.00 18 18 0 0 “bad” 16.04 16.04 32.08 8.00
89 16 4 12 4 “good” 8.00 0 8.00 28 7 0 1 “bad” 8.00 1.01 9.01 8.00
90 16 4 12 4 “good” 8.00 0 8.00 28 7 0 1 “bad” 8.00 1.01 9.01 8.00
91 22 4 6 4 “good” 27.38 2.77 30.15 28 7 0 1 “bad” 32.00 1.01 33.01 8.00
92 15 15 4 4 none 6.33 6.33 12.66 19 19 0 0 “bad” 5.00 5.00 10.00 10.00
93 10 10 9 9 “good” 5.00 5.00 10.00 19 19 0 0 “bad” 5.05 5.05 10.10 10.00
94 14 14 5 5 “good” 21.00 21.00 42.00 19 19 0 0 “bad” 21.00+ε 21.00+ε 42.00+ε 42.00
95 16 4 14 4 “good” 10.00 0 10.00 30 7 0 1 “bad” 9.78 1.07 10.85 10.00
96 16 4 14 4 “good” 10.00 0 10.00 30 7 0 1 “bad” 9.78 1.07 10.85 2.00
97 24 4 6 4 “good” 36.28 3.43 39.71 30 7 0 1 “bad” 40.92 1.07 41.99 34.00
98 10 10 7 7 “good” 3.00 3.00 6.00 17 17 0 0 “bad” 3.31 3.31 6.62 6.00
99 10 10 7 7 “good” 3.00 3.00 6.00 17 17 0 0 “bad” 9.95 9.95 19.91 6.00
100 12 12 5 5 “good” 20001 20001 40002 17 17 0 0 “bad” 20474 20474 40948 40002
101 16 4 10 4 “good” 6.00 0 6.00 26 6 0 2 “bad” 5.75 196 201.75 6.00
102 17 3 9 5 “good” 5.00 1.00 6.00 26 6 0 2 “bad” 5.75 196 201.75 6.00
103 20 2 6 6 “good” 18184 1820 20004 26 6 0 2 “bad” 37502 196 37698 20004
Fig. 7. Regions where the secondary mechanism leads to lower expected system-wide costs than the primary mechanism, as a function of SU valuation heterogeneity and
demand-capacity imbalances (C1 = C2 = 20).
683
Fig. 8. SU displacement as a function of SU valuations under both mechanisms (α1 = 26, α2 = 8, C1 = C2 = 20).
own low-valuation SUs through “good gaming”). In between, the

relative performance of the primary vs. secondary mechanisms de-
pends on demand-capacity imbalances, IUs’ market shares, and the
balance of low-valuation and high-valuation SUs: in the vast ma-
jority of cases, the primary mechanism is more attractive when
demand-capacity imbalances are weaker, when IUs are asymmet-
ric, and when the share of high-valuation SUs is higher. Otherwise,
the secondary mechanism might dominate the primary mecha-
nism.
7. Robustness checks
We now relax two of our major assumptions by considering (i)

instances where all SUs have different valuations (as opposed to
high/low valuations), and (ii) a multi-period setting. As we shall
see, the main insights obtained thus far in this paper still hold un-
der each of these two conditions.
7.1. Continuous SU valuations in a two-period setting
One may argue that our earlier results are driven by the dis-
cretization of SU valuations. Therefore, we run several computa-
tional experiments similar to Section 6 where each SU has a dif-
ferent valuation.
2 The loss function of IU n (Equations (4) and (11)) Fig. 9. Sample preferred schedule for the 8-period setting (color shades capture SU

i∈Pnt δi |ui | under the primary mechanism, and
becomes ES t=1 valuations).
2
ES t=1 i∈Pnt δi |u
˜i | under the secondary mechanism. The valua-
tion of each SU is drawn randomly from a positive interval [vL , vH ] SUs in the peak period to receive as many SUs as possible in the
(with vL = 3 and vH = 25 in our experiments). We consider a set- peak period.
ting where α1 > C1 and α1 + α2 ≤ C1 + C2 . Specifically, our setting
comprises two periods, each with a capacity of 20 SUs; there are 7.2. Continuous SU valuations in a multi-period setting
34 SUs in total, 26 preferred to be scheduled in Period 1 and 8 in
Period 2; the two IUs are asymmetric, with one having 20 SUs (16 Due to combinatorial complexities, the loss function and Nash
in Period 1 and 4 in Period 2) and the other one having 14 SUs equilibria cannot be derived analytically in a multi-period setting.
(10 in Period 1 and 4 in Period 2). Figure 8 shows the numbers of We thus validate our insights computationally. Figure 9 shows our
displaced and non-displaced units as a function of SU valuations experimental setup: we consider eight time periods, each with a
under both mechanisms. capacity of 20 SUs. Demand-capacity imbalances occur in Periods
Under the primary mechanism, no SU is displaced from Period 4, 5 and 6, reflecting a busy peak in the middle of the overall hori-
2 (the off-peak period) to Period 1 (the peak period) and some zon. We consider four asymmetric IUs, the largest IU with 27 SUs
SUs are displaced from Period 1 to Period 2. This confirms our to schedule, and the smallest IU with 15 SUs. In the figure, each
previous finding of “good gaming” under the primary mechanism: color represents an IU and its shade reflects each SU’s valuation.
IUs may voluntarily displace low-valuation SUs to “protect” high- To capture different extents of SU valuation heterogeneity, we draw
valuation SUs in the peak period. Note that the effects are not SU valuations uniformly from an interval [vL , vH ], with vL = 3 and
strictly monotonic (i.e., there exists a displaced SU with a higher vH ∈ {3, 10, 25}. For the results presented in Figure 13 though, SU
valuation than some non-displaced SU) because different IUs apply valuations are drawn from a truncated normal distribution within
different thresholds. In contrast, under the secondary mechanism, the interval (0, ∞ ), with a mean of 10. The schedules submitted by
users consistently move all SUs from Period 2 (the off-peak period) the IUs under two mechanisms are shown in Figures 10 and 11.
to Period 1 (the peak period). This confirms our previous finding of Under the primary mechanism, we do not observe strate-
“bad gaming” under the secondary mechanism: IUs request more gic behaviors under identical valuations (Figure 10a). When val-
684
Fig. 10. Submitted schedule under the primary mechanism, as a function of SU heterogeneity.
Fig. 11. Submitted schedule under the secondary mechanism, as a function of SU heterogeneity.
Fig. 12. Probability density function of SU valuations of IUs’ requests under both mechanisms.
uation heterogeneity increases, we observe some “good gam- The secondary mechanism leads to nearly identical requests as
ing”: some IUs voluntarily displace their own low-valuation SUs the primary mechanism (only one SU is displaced), when SU val-
from congested periods to uncongested periods. Under moder- uations are identical. As valuation heterogeneity increases, how-
ate valuation heterogeneity (Figure 10b), demand-capacity imbal- ever, the secondary mechanism leads to systematically different
ances remain, albeit of a smaller magnitude than under the pre- outcomes than the primary mechanism. As compared to the two-
ferred schedule. Under strong valuation heterogeneity (Figure 10c), period setting, the IUs’ requests under the secondary mechanism
demand-capacity imbalances are eliminated by “good gaming” no longer follow strict “good gaming” or “bad gaming” behaviors,
behaviors. but are more complex and nuanced—and perhaps therefore more
685
reflecting the more complex but also more realistic outcomes un-
der the secondary mechanism (as opposed to the extreme “bad
gaming” behaviors observed in the two-period case). Yet, the main
takeaway is that, consistent with our findings in the two-period
setting, the primary mechanism can lead to lower expected costs
than the secondary mechanism under weak or strong valuation
heterogeneity, whereas the reverse holds under intermediate val-
uation heterogeneity. The rationale follows the same logic: (i) un-
der weak valuation heterogeneity, secondary swaps provide limited
value; (ii) under moderate heterogeneity, secondary swaps provide
more value that outweighs the costs of “bad gaming” whereas the
primary mechanism does not induce strong “good gaming” behav-
iors; and (iii) under strong heterogeneity, the primary mechanism
induces stronger “good gaming” behaviors. Overall, these results
establish the robustness of our main finding, in that there exist
multi-period instances where the secondary mechanism does not
Fig. 13. Expected system-wide costs under both mechanisms, as a function of SU
necessarily provide benefits as compared to the primary mecha-
valuation heterogeneity
nism when users are strategic.
8. Conclusion
realistic. Indeed, in the two-period setting, the secondary mecha-
nism often led to extreme outcomes, with all SUs being requested Many infrastructure systems are governed by non-monetary
in the congested period (see Table 2 and Figure 8b). In the multi- capacity allocation mechanisms: users request access to a cen-
period setting, however, the submitted schedules are more bal- tralized infrastructure manager, who then determines a sched-
anced (Figure 11). ule of utilization given capacity restrictions. The design of non-
Specifically, the submitted schedule features some aspects that monetary mechanisms is challenged by information asymmetry
are reminiscent of “good gaming” behaviors (recall that “good between infrastructure users (who know their preferred schedule
gaming” did not appear in the secondary mechanism in a two- of utilization) and the infrastructure manager (who has access to
period setting) and some aspects that are reminiscent of “bad gam- only the information provided by the users). To circumvent these
ing” behaviors (consistent with the two-period setting). On the asymmetries, several infrastructure systems have augmented pri-
“good gaming” side, the most congested period, Period 5, becomes mary mechanisms (under which the schedule of utilization is de-
less congested—IU 2 and IU 4 displace SUs to other periods. On the termined by the infrastructure manager) with secondary mecha-
“bad gaming” side, IU 1 displaces one SU from Period 6 to 5 mak- nisms (under which users can swap their service units following
ing it more congested; besides, Period 3, which was originally un- the infrastructure manager’s interventions). In principle, secondary
congested, becomes congested because of IUs’ strategic behaviors. mechanisms can achieve more efficient outcomes by decentraliz-
Therefore, we extend the definition of “bad gaming” for the multi- ing decisions to the users, thus mitigating the costs of information
period setting to capture instances where IUs displace their own asymmetry.
SUs from less congested to more congested periods (as before) or This paper shows that it is not necessarily the case: secondary
where IUs’ strategic behaviors create new congested periods (new). mechanisms may result in higher costs than primary mechanisms
Ultimately: (i) “bad gaming” behaviors are still present under the when infrastructure users are strategic. To show this, this paper
secondary mechanism (as in the two-period setting) and (ii) the developed a multi-stage game under primary and secondary mech-
secondary mechanism also induces some “good gaming” compo- anisms. By characterizing its Nash equilibrium (or equilibria), it as-
nents due to inter-period interactions (unlike in the two-period sessed the impact of each mechanism on users’ inputs, the ulti-
setting). mate schedule of utilization, and system performance. Results sug-
We now summarize the strategic behaviors in the multi-period gest that the primary mechanism is either incentive compatible
setting by plotting the density of SU valuations, separately for each or induces “good gaming” behaviors from the users (i.e., voluntary
type of submission behavior. Under the primary mechanism, we displacements of low-value service units from peak periods to off-
only observe “good gaming”. As in our two-period setting, the SUs peak periods). In contrast, the secondary mechanism creates incen-
that are moved by the IUs have lower valuations, on average, than tives for users to request more service units than preferred in peak
those that are requested at their preferred times. This extends our periods. Such strategic behaviors can lead to higher expected costs
earlier insights that IUs tend to displace their low-valuation SUs than the primary mechanism.
to “protect” their high-valuation SUs. Note, also, that some SUs The game-theoretic aspects of infrastructure management mo-
are moved away from congested periods but some SUs are also tivate further research, especially with multiple periods, non-
moved away from uncongested periods—due to the ripple effects atomistic users and discrete service units. This paper made nec-
of schedule displacement in multi-period settings. These SUs have essary simplifications to retain analytical tractability. Our robust-
a lower valuation, on average, than those displaced away from con- ness checks suggest that our main insights hold more broadly, but
gested periods. Under the secondary mechanism, we observe “bad more research is needed to optimize scheduling interventions in
gaming” behaviors as well as “good gaming” behaviors—reflecting complex multi-period settings while capturing users’ strategic be-
more complex and more nuanced behaviors in the multi-period haviors. In addition, an open research question involves charac-
setting. terizing strategyproof mechanisms in our context. A related re-
Finally, Figure 13 shows the expected costs under the two search direction would involve designing alternative mechanisms
mechanisms, as a function of SU valuation heterogeneity (defined that could approximate optimal strategyproof ones but could be
as the variance of SU valuations). In these experiments, SU valu- more amenable to practical implementation. Such research could
ations follow a truncated normal distribution within the interval lead to the consideration of new approaches to resource alloca-
(0, ∞ ), with a mean of 10. Note, first, that the secondary mech- tion in infrastructure-intensive industries, based on non-monetary
anism results in lower expected costs than the primary mecha- mechanisms that enable users to signal the relative valuation of
nism for more parameter values than in the two-period setting, their own service units, or market-based mechanisms involving
686
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Primary Versus Secondary Infrastructure Capac - 2022 - European Journal of Opera

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European Journal of Operational Research 303 (2022) 668–687

Contents lists available at ScienceDirect

European Journal of Operational Research

Production, Manufacturing, Transportation and Logistics

Primary versus secondary infrastructure capacity allocation

1 A Period 1 5 Period 1 Period 1

ative valuation of each SU. The IUs simultaneously submit a set H = P H ∩ (∪

ule resulting from the IM’s interventions.

that optimally solve Problem (P 2 ) (and hence are equally likely),

gJ (ln1 , l−n,1 ) = ln1 +l−n,1 k×

Fig. 5. Functional forms of IU n’s loss function (C1 = C2 = 20).

(worst-case) equilibrium for that case. As demand increases, users

1 2 18 8 (5,5) (4,4) (2,2) (2,2) (9,9) (4,4) (9,9) (4,4)

1 18 8 any 5 5 4 4 2 2 2 2 no yes balanced SU valuations

53 26 8 2.5 20 2 2 2 2 2 2 2 moderate no mainly low-valuation SUs

Primary mechanism Secondary mechanism

Primary mechanism Secondary mechanism

53 22 4 4 4 none 5.77 1.61 7.38 26 6 0 2 “bad” 5.75 0.86 6.61 6.00

own low-valuation SUs through “good gaming”). In between, the

We now relax two of our major assumptions by considering (i)

7.1. Continuous SU valuations in a two-period setting

You might also like

Primary Versus Secondary Infrastructure Capac - 2022 - European Journal of Opera

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Copyright

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Is this content inappropriate?

Copyright:

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Primary Versus Secondary Infrastructure Capac - 2022 - European Journal of Opera

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European Journal of Operational Research 303 (2022) 668–687

Contents lists available at ScienceDirect

European Journal of Operational Research

Production, Manufacturing, Transportation and Logistics

Primary versus secondary infrastructure capacity allocation

1 A Period 1 5 Period 1 Period 1

ative valuation of each SU. The IUs simultaneously submit a set H = P H ∩ (∪

ule resulting from the IM’s interventions. 

that optimally solve Problem (P 2 ) (and hence are equally likely),

gJ (ln1 , l−n,1 ) = ln1 +l−n,1 k×

Fig. 5. Functional forms of IU n’s loss function (C1 = C2 = 20).

(worst-case) equilibrium for that case. As demand increases, users

1 2 18 8 (5,5) (4,4) (2,2) (2,2) (9,9) (4,4) (9,9) (4,4)

1 18 8 any 5 5 4 4 2 2 2 2 no yes balanced SU valuations

53 26 8 2.5 20 2 2 2 2 2 2 2 moderate no mainly low-valuation SUs

Primary mechanism Secondary mechanism

Primary mechanism Secondary mechanism

53 22 4 4 4 none 5.77 1.61 7.38 26 6 0 2 “bad” 5.75 0.86 6.61 6.00

own low-valuation SUs through “good gaming”). In between, the

We now relax two of our major assumptions by considering (i)

7.1. Continuous SU valuations in a two-period setting

You might also like

ule resulting from the IM’s interventions.