Procurement auctions with capacity constrained suppliers

Aadhaar Chaturvedi

European Journal of Operational Research, 2015, vol. 247, issue 3, 987-995

Abstract: 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.

Keywords: Auctions/bidding; Purchasing; Asymmetric auctions (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:247:y:2015:i:3:p:987-995

DOI: 10.1016/j.ejor.2015.06.039

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