Buyer’s optimal information revelation strategy in procurement auctions

Cheng Qian and Edward Anderson

European Journal of Operational Research, 2020, vol. 283, issue 3, 1011-1025

Abstract: We consider a procurement auction where the buying firm can manipulate the distribution of the uncertainty facing competing suppliers via reducing subjectivity in the scoring rule announced before the auction, and we examine the optimal choice of information revelation for the buyer. Specifically, we model a multi-attribute scoring auction in which the suppliers submit bids involving both price and non-price attributes and the buyer selects one supplier according to a weighted scoring system. Although the scoring rule is preannounced and the buyer commits to it during the bid evaluation, it contains elements that are subjective in nature and not precisely defined, so the suppliers still do not have full information about the exact score that will be awarded. It may be possible for the buyer to reduce the subjective component in the scoring rule by giving unusually detailed descriptions of what corresponds to specific scores. We demonstrate that it is beneficial for the buyer to limit the information revealed by retaining some subjective or imprecisely defined components in the announced scoring rule, so that the suppliers continue to be uncertain about their final scores. It is also shown that the buyer can gain more from this type of imprecision (i.e., releasing less information) if the suppliers are more different in terms of their costs to achieve a given quality level or other aspects of utility for the buyer. We consider both sealed bid and open auction formats.

Keywords: Auction/bidding; Scoring auction; Multi-attribute bids; Information revelation (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:283:y:2020:i:3:p:1011-1025

DOI: 10.1016/j.ejor.2019.11.061

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