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Revenue deficiency under second-price auctions in a supply-chain setting

Romero Morales, Dolores and Steinberg, Richard ORCID: 0000-0001-9636-472X (2014) Revenue deficiency under second-price auctions in a supply-chain setting. European Journal of Operational Research, 233 (1). pp. 131-144. ISSN 0377-2217

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Identification Number: 10.1016/j.ejor.2013.07.041


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.

Item Type: Article
Official URL:
Additional Information: © 2013 Elsevier B.V.
Divisions: Management
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 27 Sep 2013 08:36
Last Modified: 01 Jun 2024 03:32

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