Transparency in Buyer‐Determined Auctions: Should Quality be Private or Public?

We study buyer‐determined procurement auctions where both price and non‐price characteristics of bidders matter for being awarded a contract. Although, in scoring auctions bidders perfectly know how price and non‐price attributes determine the awarding of the contract, this remains uncertain in buyer‐determined auctions where the buyer is free to choose once all bids have been submitted. We analyze the impact of information bidders have with respect to the buyer's awarding decision. As we show theoretically whether it is in the buyer's interest to conceal the impact of non‐price characteristics depends on how important the quality aspects of the procured good are to the buyer: The more important quality aspects are, the more interesting concealment becomes. In a counterfactual analysis using data from a large European procurement platform, we analyze the reduction of non‐price information available to the bidders. Confirming our hypothesis, for auction categories where bidders’ non‐price characteristics strongly influence buyers’ decisions concealment of non‐price information leads to an increase in buyers’ surplus of up to 15% due to higher competitive pressure and lower bids. Conversely, for categories where bidders’ non‐price characteristics are of little importance concealment of non‐price information leads to a decrease in buyers’ surplus of up to 6%.     

Do Auction Parameters Affect Buyer Surplus in E‐Auctions for Procurement?

Although the initial euphoria about Internet‐enabled reverse auctions has given way to a cautious but widespread use of reverse auctions in business‐to‐business (B2B) procurement, there is a limited understanding of the effect of auction design parameters on buyer surplus. In this paper, we study the effect of bidding competition, information asymmetry, reserve price, bid decrement, auction duration, and bidder type on buyer surplus. We collected field data on more than 700 online procurement auctions conducted by a leading auctioneer and involving procurement items worth millions of dollars. Consistent with the predictions of auction theory, the results indicate that bidding competition, reserve price, and information sharing affect buyer surplus. Unlike previous findings in the consumer‐to‐consumer context, we find that bid decrement and auction duration have no effect in B2B procurement auctions. Our results suggest that use of the rank‐bidding format increases buyer surplus when incumbent suppliers participate in the auction. We discuss the theoretical and managerial implications of these findings for future research and for optimal design of online procurement auctions.     

Increasing Revenue by Decreasing Information in Procurement Auctions

We report on results of several laboratory experiments that investigate on‐line procurement auctions in which suppliers bid on price, but exogenous bidder quality affects winner determination. In procurement auctions, bidder quality may or may not be publicly known to all bidders, and the effect of this quality transparency on the auction outcome is one aspect of auction design that we examine. The second aspect of auction design that we examine is the effect of price visibility on the auction outcome, and the interaction between price visibility and quality transparency. In terms of price visibility, we consider two extreme cases: the sealed bid request for proposals (RFPs), and the open‐bid dynamic auction event. In terms of bidder quality transparency, we also consider two extreme cases: a setting in which bidder qualities are publicly known and the case in which they are private. We find that in our laboratory experiments, the RFP format is consistent in generating higher buyer surplus levels than does the open‐bid dynamic format. This advantage is independent of the quality transparency. In contrast, the open‐bid format is highly sensitive to quality transparency, generating significantly lower buyer surplus levels when the information about bidder quality is public.     

Procurement with Reverse Auction and Flexible Noncompetitive Contracts

This article investigates a hybrid procurement mechanism that combines a reverse auction with flexible noncompetitive contracts. A buyer adopts such mechanism to procure multiple units of a product from a group of potential suppliers. Specifically, the buyer first offers contracts to some suppliers who, if accepting the contract, do not participate in the auction while committing to selling a unit to the buyer at the price of the subsequent auction. For the suppliers rejecting the offers, they can join the subsequent auction with the other suppliers to compete on the remaining units. When the buyer offers only one flexible noncompetitive contract, we find that the selected supplier may accept the offer regardless of whether he knows his exact cost information. Meanwhile, the buyer can benefit from offering such a contract, as opposed to solely conducting a regular reverse auction or offering a noncompetitive contract that does not allow suppliers declining offers to join the subsequent auction. Moreover, we find that the suppliers' information about their own costs has a significant impact on the buyer's decision. When the buyer makes multiple offers, we analyze the resulting game behavior of the selected suppliers and demonstrate that the buyer can benefit more than just offering one such contract. Therefore, the hybrid procurement mechanism can be mutually beneficial for both the buyer and the selected suppliers.     

具有高投标成本的多属性逆向拍卖博弈模型

越来越多像GE这样的大型企业在利用多属性逆向拍卖选择新的供应商采购产品时,通常会设定较高的固定投标成本。针对此情况,建立了三阶段的非合作博弈模型,并利用求解子博弈纳什均衡策略的方法,推导出了供应商的最优投标价格。并得到以下两个主要结论:一是供应商的最优投标策略是按照生产产品真实的质量和交货期进行投标,且投标价格为最优投标价格;二是采购商的最优策略是选择投标价格最高的供应商作为拍卖获胜者,这一违反直觉的结论。这是合理的,因为投标价格最高的供应商也是类型最优的供应商,也即投标质量和投标交货期组合最优的供应商。最后,利用数值实验验证了模型的有效性,并显示出设定相对较高的固定投标成本对采购商来说是有利的。     

Push or Pull? Auctioning Supply Contracts

Consider a buyer, facing uncertain demand, who sources from multiple suppliers via online procurement auctions (open descending price‐only auctions). The suppliers have heterogeneous production costs, which are private information, and the winning supplier has to invest in production capacity before the demand uncertainty is resolved. The buyer chooses to offer a push or pull contract, for which the single price and winning supplier are determined via the auction. We show that, with a pull contract, the buyer does not necessarily benefit from a larger number of suppliers participating in the auction, due to the negative effect of supplier competition on the incentive of supplier capacity investment. We thus propose an enhanced pull mechanism that mitigates this effect with a floor price. We then analyze and compare the outcomes of auctions for push and (enhanced) pull contracts, establishing when one form is preferred over the other based on the buyer's profits. We also compare our simple, price‐only push and pull contract auctions to the optimal mechanisms, benchmarking the performance of the simple mechanisms as well as establishing the relative importance of auction design and contract design in procurement auctions.     

Keyword Auctions,Unit‐Price Contracts,and the Role of Commitment

Motivated by the enormous growth of keyword advertising, this paper explores the design of performance‐based unit‐price contract auctions, in which bidders bid their unit prices and the winner is chosen based on both their bids and performance levels. The previous literature on unit‐price contract auctions usually considers a static case where bidders' performance levels are fixed. This paper studies a dynamic setting in which bidders with a low performance level can improve their performance at a certain cost. We examine the effect of the performance‐based allocation on overall bidder performance, auction efficiency, and the auctioneer's revenue, and derive the revenue‐maximizing and efficient policies accordingly. Moreover, the possible upgrade in bidders' performance level gives the auctioneer an incentive to modify the auction rules over time, as is confirmed by the practice of Yahoo! and Google. We thus compare the auctioneer's revenue‐maximizing policies when she is fully committed to the auction rule and when she is not, and show that the auctioneer should give less preferential treatment to low‐performance bidders when she is fully committed.     

Ranked Items Auctions and Online Advertisement

We study auctions for a set of commonly‐ranked items where each buyer has unit demand. This setting has promising applications in areas such as keyword auctions in the search engine advertising industry, the sale of quality‐ranked raw materials, etc. An auction mechanism suitable for this setting is the simultaneous pooled auction (SPA), where each bidder simultaneously submits a single bid and is allocated an object based on the rank of his bid among all the bids. We study how to improve the seller's expected revenue by enforcing a reserve price in an SPA. We find that the use of an appropriate reserve price may significantly increase the seller's revenue, especially when the number of items for sale is relatively large compared to the number of participating bidders. One inherent problem in the SPA is that some bidders may incur ex post losses; that is, they pay more than what they value the received objects. We propose a tailored VCG mechanism that generates the same expected revenue as the SPA does, while bidders do not incur any ex post loss. We also discuss the potential applications of this research to keyword auctions.     

An Experimental Investigation of Procurement Auctions with Asymmetric Sellers

Electronic reverse auctions are a commonly used procurement mechanism. Research to date has focused on suppliers who are ex ante symmetric in that their costs are drawn from a common distribution. However, in many cases, a seller's range of potential costs depends on their own operations, location, or economies of scale and scope. Thus, understanding how different bidder types impact auction outcomes is key when designing an auction. This study reports the results of the first controlled laboratory experiment designed to compare prices between first‐price and second‐price procurement auctions for homogeneous goods when seller cost types are asymmetric and the number of bidders varies. The results indicate that first‐price auctions generate lower prices regardless of market composition. The results also reveal that first‐price auctions are at least weakly more efficient than second‐price auctions despite the theoretical prediction that the reverse should hold in asymmetric auctions. Post hoc analysis of individual bidders' behavior in first‐price auctions revealed evidence that bidders systematically underbid when their cost realizations were close to the lower bound. Furthermore, bidders adjust their behavior based on the type of the other bidders in the market in a manner inconsistent with theory. Consequently, adding a third bidder to a two‐bidder market is not advantageous to the buyer unless that third bidder is a low‐cost type.     

Capacity Allocation among Multiple Suppliers in an Electronic Market

An electronic marketplace typically provides industrial suppliers an alternative option for selling their capacity in addition to the traditional open market. However, suppliers face different sets of costs and risks in open market and in electronic market. Consequently, suppliers participating in an electronic market are likely to offer their capacity at a different price compared with traditional open market. We analyze this problem and derive the price‐capacity function for the supplier. We also derive a basis for allocating buyer's requirements among multiple suppliers so as to minimize his cost. Our model shows that suppliers with large capacities would quote a lower price in the electronic market. It also predicts that the unit bid price increases with bid quantity in the electronic market. Based on the price‐capacity curve, we model a scenario where the buyer announces, a priori, the number of suppliers to be selected for award of a contract that will minimize its costs.     

基于Cobb-Douglas效用函数的多属性采购拍卖

在多属性采购拍卖的实践中,利润和赢得合同对供给者来说具有不同的重要性.假设供给者使用Cobb-Douglas效用函数对利润和赢得合同的重要性程度进行权衡,在第一评分拍卖及第二评分拍卖下获得了供给者的均衡投标策略和采购者的期望效用,并对采购者的期望效用进行了比较.结果表明供给者对被采购物品的质量选择只与自己的成本参数和打分函数有关;当供给者越看重获取采购合同,采购者的期望效用越高;当采购者只能使用效用函数打分时,如果供给者更看重利润,采购者应该采用第二评分拍卖节约采购成本,否则使用第一评分拍卖.     

Optimal Descending Mechanisms for Constrained Procurement

Descending mechanisms for procurement (or, ascending mechanisms for selling) have been well‐recognized for their simplicity from the viewpoint of bidders—they require less bidder sophistication as compared to sealed‐bid mechanisms. In this study, we consider procurement under each of two types of constraints: (1) Individual/Group Capacities: limitations on the amounts that can be sourced from individual and/or subsets of suppliers, and (2) Business Rules: lower and upper bounds on the number of suppliers to source from, and on the amount that can be sourced from any single supplier. We analyze two procurement problems, one that incorporates individual/group capacities and another that incorporates business rules. In each problem, we consider a buyer who wants to procure a fixed quantity of a product from a set of suppliers, where each supplier is endowed with a privately known constant marginal cost. The buyer's objective is to minimize her total expected procurement cost. For both problems, we present descending auction mechanisms that are optimal mechanisms. We then show that these two problems belong to a larger class of mechanism design problems with constraints specified by polymatroids, for which we prove that optimal mechanisms can be implemented as descending mechanisms.     

Price and Service Competition in an Outsourced Supply Chain

We consider a buyer who outsources the manufacturing of a product to multiple symmetric make‐to‐stock suppliers who compete on price and service (fill rate). The buyer allocates demand to the suppliers using a score function with an exponential form, which specifies the relative importance of price vs. service, in order to minimize his costs, while the suppliers choose their prices and fill rates to maximize their profits. For the case of dual‐sourcing, we characterize the optimal parameter of the exponential score function, considering the impact of the buyer's decisions on the suppliers, and considering how the suppliers compete against each other to earn a portion of the buyer's demand. We prove the existence of a unique equilibrium and characterize the equilibrium behavior of the system. We then consider a general number of suppliers and show that the equilibrium prices and fill rates, and the buyer's cost, are increasing in the number of suppliers. We compare these results to a model of single‐sourcing, in which the buyer is the Stackelberg leader and extracts all profits from the supplier. We find that the buyer always prefers single‐sourcing to multisourcing. Finally, we study a centralized system and use the results to develop a coordinating contract for the decentralized system.     

Reverse Auctions to Innovate Procurement Processes: Effects of Bid Information Presentation Design on a Supplier's Bidding Outcome

Information technologies (ITs) are being used to innovate various procurement processes. This research study focuses on the supplier‐side effects of IT design choices to conduct reverse auctions, which are increasingly used to procure a wide range of products and services. IT–enabled reverse auctions enhance supplier participation across geographical boundaries, leading to more efficient pricing. However, there are growing concerns about the adverse effects of IT–enabled reverse auctions on a supplier's performance. Supplier‐side issues are gaining prominence in the reverse auction literature and are critical for the long‐term success of reverse auctions. Therefore, we focus on suppliers’ bidding outcomes and assess how the design of an IT–enabled reverse auction facilitates the auction bidding outcomes of participating suppliers. Specifically, we examine the effects of two types of bid information presentation design—full price visibility and partial price visibility—on supplier's auction bidding outcomes, across auctions with different cost certainty and suppliers bargaining power vis‐à‐vis the buyer. The results of this study contribute new knowledge about the ways to use IT for creating effective auction designs and innovating procurement through auctions to enhance both the buyer's and suppliers’ performance. We present the detailed theoretical contributions of our study and discuss the managerial implications for designers of reverse auctions.      

基于幂效用函数的多属性英式拍卖研究

以采购问题为背景研究多属性拍卖问题,其中拍卖问题的特点是：（1）包含任意有限个属性;（2）买卖双方的效用函数均具有加性结构,且在除价格以外的单个属性上,买方的效用函数和卖方的成本函数均为一般幂函数形式。首先,设计了一种买方事先公布评分函数而卖方轮流提交投标的多属性英式拍卖机制;其次,在卖方对称的假设下分析了拍卖机制中的最优投标策略,确定了最优投标价格和最优非价格属性值;然后,分析得出了最具成本优势的卖方最终胜出的条件以及最优多属性投标;最后,计算了该拍卖机制中买方的期望收益,并求出了使其期望收益最大化的最优评分函数权重。     

Split‐Award Procurement Auctions—Can Bayesian Equilibrium Strategies Predict Human Bidding Behavior in Multi‐Object Auctions?

We analyze if and when symmetric Bayes Nash equilibrium predictions can explain human bidding behavior in multi‐object auctions. We focus on two sealed‐bid split‐award auctions with ex ante split decisions as they can be regularly found in procurement practice. These auction formats are straightforward multi‐object extensions of the first‐price sealed‐bid auction. We derive the risk‐neutral symmetric Bayes Nash equilibrium strategies and find that, although the two auction mechanisms yield the same expected costs to the buyer, other aspects of the two models, including the equilibrium bidding strategies, differ significantly. The strategic considerations in these auction formats are more involved than in single‐lot first‐price sealed‐bid auctions, and it is questionable whether expected utility maximization can explain human bidding behavior in such multi‐object auctions. Therefore, we analyzed the predictive accuracy of our equilibrium strategies in the laboratory. In human subject experiments we found underbidding, which is in line with earlier experiments on single‐lot first‐price sealed‐bid auctions. To control for regret, we organize experiments against computerized bidders, who play the equilibrium strategy. In computerized experiments where bid functions are only used in a single auction, we found significant underbidding on low‐cost draws. In experiments where the bid function is reused in 100 auctions, we could also control effectively for risk aversion, and there is no significant difference of the average bidding behavior and the risk‐neutral Bayes Nash equilibrium bid function. The results suggest that strategic complexity does not serve as an explanation for underbidding in split‐award procurement auctions, but risk aversion does have a significant impact.     

The Affiliation Effect in First‐Price Auctions

We study the monotonicity of the equilibrium bid with respect to the number of bidders n in affiliated private‐value models of first‐price sealed‐bid auctions and prove the existence of a large class of such models in which the equilibrium bid function is not increasing in n. We moreover decompose the effect of a change in n on the bid level into a competition effect and an affiliation effect. The latter suggests to the winner of the auction that competition is less intense than she had thought before the auction. Since the affiliation effect can occur in both private‐ and common‐value models, a negative relationship between the bid level and n does not allow one to distinguish between the two models and is also not necessarily (only) due to bidders taking account of the winner's curse.     

Market‐Based Allocation with Indivisible Bids

We study multiunit double auctions accepting bids with indivisibility constraints. Modeling the auction problem as a Multiple Choice Knapsack Problem and using dynamic programming, we show that incremental computations during bid processing can speed the handling of key auction operations such as clearing and quoting. We propose different price‐quote policies and study their influence on the efficiency of market‐based allocation. Using a reconfigurable manufacturing scenario where agents trade large quantities of multiple goods, we demonstrate potential benefits of supporting indivisibility constraints in bidding. These benefits are highly sensitive to the form of price quote provided, indicating interesting tradeoffs in communication and allocation efficiency.     

Precautionary Bidding in Auctions

We analyze bidding behavior in auctions when risk‐averse buyers bid for a good whose value is risky. We show that when the risk in the valuations increases, DARA bidders will reduce their bids by more than the appropriate increase in the risk premium. Ceteris paribus, buyers will be better off bidding for a more risky object in first price, second price, and English auctions with affiliated common (interdependent) values. This “precautionary bidding” effect arises because the expected marginal utility of income increases with risk, so buyers are reluctant to bid so highly. We also show that precautionary bidding behavior can make DARA bidders prefer bidding in a common values setting to bidding in a private values one when risk‐neutral or CARA bidders would be indifferent. Thus the potential for a “winner's curse” can be a blessing for rational DARA bidders.     

Introduction to the Special Issue on E‐Auctions for Procurement Operations

We present nine papers on e‐auctions for procurement operations. The first of the issue's three sections is a foreword highlighting current trends and future research directions. The second section is composed of three commissioned survey papers, covering auctions within e‐sourcing events, electronic markets for truckload transportation, and games and mechanism design in machine scheduling. The final section consists of five research papers on the following topics: whether auction parameters affect buyer surplus in e‐auctions for procurement, collusion in second‐price auctions under minimax regret, the effect of timing on jump bidding in ascending auctions, market‐based allocation with indivisible bids, and ranked items auctions and online advertisement.