Incentive mechanisms for hierarchical spectrum markets

We study spectrum allocation mechanisms in hierarchical multi-layer markets which are expected to proliferate in the near future according to the evolving spectrum policy reform proposals. We consider the scenario that arises when a governmental agency sells spectrum channels to Primary Operators (POs) who subsequently resell them to Secondary Operators (SOs) through auctions. We show that these hierarchical markets do not result in a socially efficient spectrum allocation which is aimed by the agency, due to lack of coordination among the entities in different layers and the inherently selfish revenue-maximizing strategy of POs. In order to reconcile these opposing objectives, we propose an incentive mechanism which aligns the strategy of the POs with the objective of the agency. This pricing-based scheme constitutes a method for hierarchical market regulation. A basic component of the mechanism is a novel auction scheme which enables POs to allocate their spectrum by balancing their derived revenue and the welfare of the SOs. Our analytical and numerical results indicate that the proposed incentive mechanism leads to significant system performance improvement in terms of social welfare.