We consider the problem of a spatially distributed market with strategic agents. In this problem a single good is traded in a set of independent markets, where shipment between markets is possible but incurs a cost. The problem has previously been studied in the non-strategic case, inwhich it can be analyzed and solved as a min-cost-flow problem. We considerthe case where buyers and sellers are strategic. Our first result gives adouble characterization of the VCG prices, first as distances in acertain residue graph and second as the minimal (for buyers) and maximal (forsellers) equilibrium prices. This provides a computationally efficient, individually rational and incentive compatible welfare maximizing mechanism. This mechanism is, necessarily, not budget balanced and we provide alsoa budget-balanced mechanism (which is also computationally efficient,incentive compatible, and individually rational) that achieves highwelfare. Some of our results extend to the cases where buyers andsellers have arbitrary convex demand and supply functions and to the case where transportation is controlled by strategic agents as well.

Joint work with Moshe Babaioff and Noam Nisan