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First- and second-price sealed-bid auctions applied to push and pull supply contracts

Maximilian Budde and Stefan Minner

European Journal of Operational Research, 2014, vol. 237, issue 1, 370-382

Abstract: We investigate a newsvendor-type retailer sourcing problem under demand uncertainty who has the option to source from multiple suppliers. The suppliers’ manufacturing costs are private information. A widely used mechanism to find the least costly supplier under asymmetric information is to use a sealed-bid reverse auction. We compare the combinations of different simple auction formats (first- and second-price) and risk sharing supply contracts (push and pull) under full contract compliance, both for risk-neutral and risk-averse retailer and suppliers. We show the superiority of a first-price push auction for a risk-neutral retailer. However, only the pull contracts lead to supply chain coordination. If the retailer is sufficiently risk-averse, the pull is preferred over the push contract. If suppliers are risk-averse, the first-price push auction remains the choice for the retailer. Numerical examples illustrate the allocation of benefits between the retailer and the (winning) supplier for different number of bidders, demand uncertainty, cost uncertainty, and degree of risk-aversion.

Keywords: Purchasing; Auctions/bidding; Push and pull supply contracts; Risk aversion (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:237:y:2014:i:1:p:370-382

DOI: 10.1016/j.ejor.2014.03.007

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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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