TY - JOUR
T1 - Revenue Deficiency Under Second-price Auctions in a Supply-chain Setting
AU - Romero Morales, Dolores
AU - Steinberg, Richard
PY - 2014
Y1 - 2014
N2 - Consider a firm, called the buyer, that satisfies its demand over two periods by assigning both demands to a supplier via a second-price procurement auction; call this the Standard auction. In the hope of lowering its purchase cost, the firm is considering an alternative procedure in which it will also allow bids on each period individually, where there can be either one or two winners covering the two demands; call this the Multiple Winner auction. Choosing the Multiple Winner auction over the Standard auction can in fact result in a higher cost to the buyer. We provide a bound on how much greater the buyer’s cost can be in the Multiple Winner auction and show that this bound is tight. We then sharpen this bound for two scenarios that can arise when the buyer announces his demands close to the beginning of the demand horizon. Under a monotonicity condition, we achieve a further sharpening of the bound in one of the scenarios. Finally, this monotonicity condition allows us to generalize this bound to the T-period case in which bids are allowed on any subset of period demands.
AB - Consider a firm, called the buyer, that satisfies its demand over two periods by assigning both demands to a supplier via a second-price procurement auction; call this the Standard auction. In the hope of lowering its purchase cost, the firm is considering an alternative procedure in which it will also allow bids on each period individually, where there can be either one or two winners covering the two demands; call this the Multiple Winner auction. Choosing the Multiple Winner auction over the Standard auction can in fact result in a higher cost to the buyer. We provide a bound on how much greater the buyer’s cost can be in the Multiple Winner auction and show that this bound is tight. We then sharpen this bound for two scenarios that can arise when the buyer announces his demands close to the beginning of the demand horizon. Under a monotonicity condition, we achieve a further sharpening of the bound in one of the scenarios. Finally, this monotonicity condition allows us to generalize this bound to the T-period case in which bids are allowed on any subset of period demands.
KW - Procurement
KW - Supply chain
KW - Second-price auction
KW - VCG mechanism
KW - Revenue deficiency
U2 - 10.1016/j.ejor.2013.07.041
DO - 10.1016/j.ejor.2013.07.041
M3 - Journal article
SN - 0377-2217
VL - 233
SP - 131
EP - 144
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 1
ER -