Reverse auctions with regret-anticipated bidders

Xiaohu Qian (), Shu-Cherng Fang (), Min Huang (), Qi An () and Xingwei Wang ()
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Xiaohu Qian: Northeastern University
Shu-Cherng Fang: North Carolina State University
Min Huang: Northeastern University
Qi An: North Carolina State University
Xingwei Wang: Northeastern University

Annals of Operations Research, 2018, vol. 268, issue 1, No 15, 293-313

Abstract: Abstract Suppliers may experience emotional/behavioral consequences of anticipated regrets that consist of winner and loser regrets in first- and second-price sealed-bid reverse auctions. Constructing mathematical models that incorporate regret theory to derive closed-form solutions of regret-anticipated suppliers’ bid decisions, this paper theoretically examines the effects of anticipated regrets on suppliers’ bid prices, buyer’s expected procurement cost and auction format decision. Comparing with the no regret scenario, we find that winner regret has adverse effects on the buyer’s expected procurement cost in first-price sealed-bid reverse auctions with regret-anticipated suppliers. To mitigate the adverse effects, we propose using the reserve price strategy for the buyer with theoretical analysis and numerical supports. An interesting analysis reveals that as the number of suppliers increases, the optimal reserve price increases or decreases depending on the degree of winner regret is lower or higher than that of loser regret. Also, the classical revenue equivalence theorem no longer holds when the degree of winner regret differs from that of loser regret.

Keywords: Reverse auction; Anticipated regrets; Mitigation strategy; Reserve price (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10479-017-2475-6

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