Procurement without Priors: A Simple Mechanism and its Notable Performance

Dirk Bergemann, Tibor Heumann and Stephen Morris
Additional contact information
Dirk Bergemann: Yale University
Tibor Heumann: Pontificia Universidad Cat—lica de Chile
Stephen Morris: Massachusetts Institute of Technology

No 2479, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: How should a buyer design procurement mechanisms when suppliers' costs are unknown, and the buyer does not have a prior belief? We demonstrate that notably simple mechanisms Ñ those that share a constant fraction of the buyer utility with the seller Ñ allow the buyer to realize a guaranteed positive fraction of the efficient social surplus across all possible costs. Moreover, a judicious choice of the share based on the known demand maximizes the surplus ratio guarantee that can be attained across all possible (arbitrarily complex and non-linear) mechanisms and cost functions. Results apply to related nonlinear pricing and optimal regulation problems.

Pages: 55 pages
Date: 2025-12-08
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