×

Procurement auctions with capacity constrained suppliers. (English) Zbl 1346.91095

Summary: In this paper we study two reverse auction formats in a single period setting, the sealed pay-as-bid and the open format, when suppliers are capacity constrained. In the pay-as-bid format we characterize the asymmetric bidding equilibrium for the case of two suppliers with uniformly distributed cost. We find that the pay-as-bid auction allocates business inefficiently and that a supplier’s bid is nonincreasing in the opponent’s capacity and is typically decreasing in its own capacity. We then characterize a descending price-clock open auction implementation and find that it is optimal and that the buyer’s expected cost decreases as capacity is more evenly spread. Finally, we find that the pay-as-bid auction results in a higher expected cost to the buyer as compared to the open auction.

MSC:

91B26 Auctions, bargaining, bidding and selling, and other market models
PDFBibTeX XMLCite
Full Text: DOI

References:

[1] Arozamena, L.; Cantillon, E., Investment incentives in procurement auctions, The Review of Economic Studies, 71, 1, 1-18 (2004) · Zbl 1073.91026
[2] Athey, S., Single crossing properties and the existence of pure strategy equilibria in games of incomplete information, Econometrica, 69, 4, 861-889 (2001) · Zbl 1019.91006
[3] Ausubel, L. M., An efficient ascending-bid auction for multiple objects, The American Economic Review, 94, 5, 1452-1475 (2004)
[4] Ausubel, L. M.; Cramton, P., Demand Reduction and Inefficiency in Multi-Unit Auctions, University of Maryland (2002)
[5] Balestrieri, F., Essays on mechanism design (2008), Massachusetts Institute of Technology, Phd dissertation
[6] Cantillon, E., The effect of bidders’ asymmetries on expected revenue in auctions, Games and Economic Behavior, 62, 1, 1-25 (2008) · Zbl 1135.91353
[7] Chaturvedi, A.; Martínez-de Albéniz, V., Optimal procurement design in the presence of supply risk, Manufacturing and Service Operations Management, 13, 2, 227-243 (2011)
[8] Chaturvedi, A.; Beil, D. R.; Martínez-de Albéniz, V., Split-award auctions for supplier retention, Management Science, 60, 7, 1719-1737 (2014)
[9] Chen, W.; Dawande, M.; Gupta, S.; Janakiraman, G., Generalized reverse-Japanese auctions: Simple and optimal mechanisms for procurement under operational constraints (2014), UT Dallas
[11] Criesmer, J. H.; Levitan, R. E.; Shubikt, M., Toward a study of bidding processes part IV-games with unknown costs, Naval Research Logistics Quarterly, 14, 4, 415-433 (1967) · Zbl 0227.90072
[12] Green, R. J., Increasing competition in the British electricity spot market, The Journal of Industrial Economics, 44, 2, 205-216 (1996)
[13] Green, R. J.; Newbery, D. M., Competition in the British electricity spot market, Journal of Political Economy, 100, 5, 929-953 (1992)
[14] Haruvy, E.; Katok, E., Increasing revenue by decreasing information in procurement auctions, Production and Operations Management, 22, 1, 19-35 (2013)
[15] Iyengar, G.; Kumar, A., Optimal procurement auctions of divisible goods with capacitated suppliers, Review of Economic Design, 12, 2, 129-154 (2008) · Zbl 1140.91364
[16] Jap, S. D., The impact of online reverse auction design on buyer-supplier relationships, Journal of Marketing, 71, 1, 146-159 (2007)
[17] Kaplan, T. R.; Zamir, S., Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case, Economic Theory, 50, 2, 269-302 (2012) · Zbl 1245.91039
[18] Klemperer, P. D., Auction theory: A guide to the literature, Journal of Economic Surveys, 13, 3, 227-260 (1999)
[19] Klemperer, P. D.; Meyer, M. A., Supply function equilibria in oligopoly under uncertainty, Econometrica, 57, 6, 1243-1277 (1989) · Zbl 0684.90008
[20] Krishna, V., Auction Theory (2010), Academic Press
[21] Lebrun, B., First price auctions in the asymmetric N bidder case, International Economic Review, 40, 1, 125-142 (1999)
[22] Lizzeri, A.; Perisco, N., Uniqueness and existence of equilibrium in auctions with a reserve price, Games and Economic Behavior, 30, 1, 83-114 (2000) · Zbl 0938.91001
[23] Mares, V.; Swinkels, J. M., On the analysis of asymmetric first price auctions, Journal of Economic Theory, 152, 1-40 (2014) · Zbl 1297.91084
[24] Maskin, E.; Riley, J., Asymmetric auctions, The Review of Economic Studies, 67, 3, 413-438 (2000) · Zbl 0981.91029
[25] Maskin, E.; Riley, J., Uniqueness of equilibrium in sealed high-bid auctions, Games and Economic Behavior, 45, 2, 395-409 (2003) · Zbl 1133.91388
[26] Mookherjee, D.; Reichelstein, S., Dominant strategy implementation of Bayesian incentive compatible allocation rules, Journal of Economic Theory, 56, 2, 378-399 (1992) · Zbl 0761.90025
[27] Moses, L.; Anupindi, R., Boeing: The fight for fasteners (2009), William Davidson Institute case 1-428-787
[28] Myerson, R. B., Optimal auction design, Mathematics of Operations Research, 6, 1, 58-73 (1981) · Zbl 0496.90099
[29] Plum, M., Characterization and computation of Nash-equilibria for auctions with incomplete information, International Journal of Game Theory, 20, 4, 393-418 (1992) · Zbl 0763.90037
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.