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Bayesian optimal knapsack procurement

Ludwig Ensthaler and Thomas Giebe ()

European Journal of Operational Research, 2014, vol. 234, issue 3, 774-779

Abstract: A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer’s problem is to select a subset of maximal quality. Money does not enter the buyer’s objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We report the Bayesian optimal mechanism for the buyer’s problem. We find that simultaneous take-it-or-leave-it offers are interim optimal.

Keywords: Game theory; Mechanism design; Knapsack problem; Subsidies; Budget; Procurement (search for similar items in EconPapers)
Date: 2014
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European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

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