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A Negotiation-Credit-Auction mechanism for procuring customized products

  • Chen, Songlin
  • Tseng, Mitchell M.
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/B6VF8-508CCSG-2/2/d12ed4f490a459cafa60d6918d73639f
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    6. 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.
    7. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
    8. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 69-85.
    9. 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.
    10. 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.
    11. 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.
    12. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    13. 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.
    14. repec:hal:journl:hal-00471441 is not listed on IDEAS
    15. 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.
    16. Asher Wolinsky, 2005. "Procurement via Sequential Search," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 785-810, August.
    17. repec:att:wimass:9123 is not listed on IDEAS
    18. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
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