In this paper, we describe the operation of barter trade exchanges by identifying key techniques used by trade brokers to stimulate trade and satisfy member needs, and present algorithms to automate some of these techniques.  In particular, we develop algorithms that emulate the practice of trade brokers by  matching buyers and sellers  in such a way that trade volume is maximized while the balance of trade is maintained as much as possible.  We show that the buyer/seller matching and trade balance problems can be decoupled, permitting efficient solution as well as numerous options for matching strategies. 

 

We model the trade balance problem as a minimum cost circulation problem (MCC) on a network.  When the products have uniform cost or when the products can be traded in fractional units, we solve the problem exactly using a simplified version of the minimum mean cycle canceling algorithm.   Otherwise, we present a novel stochastic rounding algorithm that takes the fractional optimal solution to the trade balance problem and produces a valid integer solution.  We then make use of a greedy heuristic that attempts to match buyers and sellers so that the average number of suppliers that a buyer must use to satisfy a given product need is minimized.

 

We present results on the empirical evaluation of our algorithms on test problems and simulations.  Experiments show that our algorithm (MCC + stochastic rounding) runs in a fraction of the time of a commercial mixed integer programming (MIP) package while producing solutions that are always within 0.7% of the MIP solution. 

We evaluate the effectiveness of our algorithm on maintaining balance and on stimulating trade using two different simulation techniques, both based on transaction history data from a trade exchange.  The simulation results support the barter trade exchange rule of thumb that maximizing single-period trade volume while maintaining balance of trade helps to maximize trade volume over the long run.