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Multi-dimensional auctions under information asymmetry for costs and qualities

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  • Papakonstantinou, A.
  • Bogetoft, P.

Abstract

This paper discusses the design of a novel multi-dimensional mechanism which allows a principal to procure a single project or an item from multiple suppliers through a two-step payment. The suppliers are capable of producing different qualities at costs which cannot exceed a certain value and the mechanism balances between the costs faced by the suppliers and the benefit the principal achieves from higher qualities. Iniatially, the principal implements a standard second score auction and allocates the project to a single supplier based its reported cost and quality, while then it elicits truthful reporting of the quality by issuing a symmetric secondary payment after observing the winner’s production. We then provide an alternate mechanism in which the principal issues an asymmetric secondary payment which rewards agents for producing higher qualities, while it penalises them for producing lower qualities than they reported. We prove that for both mechanisms truthful revelation of costs and qualities is a dominant strategy (weakly for costs) and that they are immune to combined misreporting of both qualities and costs. We also show that the mechanisms are individually rational, and that the optimal payments received by the winners of the auctions are equal to the payment issued by the standard second score auction.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43563.

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Date of creation: 2012
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Handle: RePEc:pra:mprapa:43563

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Keywords: multi-dimensional auctions; procurement; contract theory; auction theory;

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  1. John Asker & Estelle Cantillon, 2008. "Properties of Scoring Auctions," ULB Institutional Repository 2013/172674, ULB -- Universite Libre de Bruxelles.
  2. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, Elsevier, vol. 2(6), pages 429-444, November.
  3. Damian R. Beil & Lawrence M. Wein, 2003. "An Inverse-Optimization-Based Auction Mechanism to Support a Multiattribute RFQ Process," Management Science, INFORMS, INFORMS, vol. 49(11), pages 1529-1545, November.
  4. Bogetoft, Peter & Nielsen, Kurt, 2008. "DEA based auctions," European Journal of Operational Research, Elsevier, Elsevier, vol. 184(2), pages 685-700, January.
  5. repec:ulb:ulbeco:2013/8999 is not listed on IDEAS
  6. David C. Parkes & Jayant Kalagnanam, 2005. "Models for Iterative Multiattribute Procurement Auctions," Management Science, INFORMS, INFORMS, vol. 51(3), pages 435-451, March.
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