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A Negotiation-Credit-Auction mechanism for procuring customized products

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  • Chen, Songlin
  • Tseng, Mitchell M.
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    Abstract

    Customization promises higher value creation by matching customers' individual specific needs with manufacturers' capabilities. However, difficulties in terms of information asymmetry, information stickiness, and conflicting incentives prevent customers from effectively tapping into the value of customization in procurement. This research conceptualizes procurement of customized products as a transaction problem with an embedded design problem. A Negotiation-Credit-Auction mechanism is developed to separate design and transaction into two stages and employ negotiation and auction, respectively. Bidding credits are introduced in an intermediate stage as an instrument for incentive adjustment. This hybrid mechanism proves to be socially efficient and provides necessary flexibility as well as incentives for innovation in customization.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 127 (2010)
    Issue (Month): 1 (September)
    Pages: 203-210

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    Handle: RePEc:eee:proeco:v:127:y:2010:i:1:p:203-210

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    Web page: http://www.elsevier.com/locate/ijpe

    Related research

    Keywords: Customization Procurement Negotiation Auction Bidding credits;

    References

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    1. Salvador, F. & Forza, C., 2004. "Configuring products to address the customization-responsiveness squeeze: A survey of management issues and opportunities," International Journal of Production Economics, Elsevier, vol. 91(3), pages 273-291, October.
    2. Hur, Daesik & Hartley, Janet L. & Mabert, Vincent A., 2006. "Implementing reverse e-auctions: A learning process," Business Horizons, Elsevier, vol. 49(1), pages 21-29.
    3. John Asker & Estelle Cantillon, 2008. "Properties of Scoring Auctions," ULB Institutional Repository 2013/172674, ULB -- Universite Libre de Bruxelles.
    4. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Jason Shachat & J. Todd Swarthout, 2003. "Procurement Auctions for Differentiated Goods," Experimental Economics Center Working Paper Series 2006-15, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Apr 2009.
    6. Asher Wolinsky, 2005. "Procurement via Sequential Search," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 785-810, August.
    7. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    8. Da Silveira, Giovani & Borenstein, Denis & Fogliatto, Flavio S., 2001. "Mass customization: Literature review and research directions," International Journal of Production Economics, Elsevier, vol. 72(1), pages 1-13, June.
    9. Patrick Bajari & Robert S. McMillan & Steve Tadelis, 2003. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," NBER Working Papers 9757, National Bureau of Economic Research, Inc.
    10. repec:ulb:ulbeco:2013/8999 is not listed on IDEAS
    11. Bichler, Martin & Kalagnanam, Jayant, 2005. "Configurable offers and winner determination in multi-attribute auctions," European Journal of Operational Research, Elsevier, vol. 160(2), pages 380-394, January.
    12. repec:att:wimass:9123 is not listed on IDEAS
    13. Carter, Craig R. & Kaufmann, Lutz & Beall, Stewart & Carter, Phillip L. & Hendrick, Thomas E. & Petersen, Kenneth J., 2004. "Reverse auctions--grounded theory from the buyer and supplier perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(3), pages 229-254, May.
    14. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
    15. Jianmin Jia & James S. Dyer, 1996. "A Standard Measure of Risk and Risk-Value Models," Management Science, INFORMS, vol. 42(12), pages 1691-1705, December.
    16. Gunasekaran, Angappa & Ngai, Eric W.T., 2008. "Adoption of e-procurement in Hong Kong: An empirical research," International Journal of Production Economics, Elsevier, vol. 113(1), pages 159-175, May.
    17. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
    18. Panayiotou, Nikolaos A. & Gayialis, Sotiris P. & Tatsiopoulos, I.P.Ilias P., 2004. "An e-procurement system for governmental purchasing," International Journal of Production Economics, Elsevier, vol. 90(1), pages 79-102, July.
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    Cited by:
    1. Bagchi, Aniruddha & Aliyas Paul, Jomon & Maloni, Michael, 2011. "Improving bid efficiency for humanitarian food aid procurement," International Journal of Production Economics, Elsevier, vol. 134(1), pages 238-245, November.

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