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Better, Faster, Cheaper: An Experimental Analysis of a Multiattribute Reverse Auction Mechanism with Restricted Information Feedback

  • Ching-Hua Chen-Ritzo

    ()

    (Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802)

  • Terry P. Harrison

    ()

    (Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802)

  • Anthony M. Kwasnica

    ()

    (Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802)

  • Douglas J. Thomas

    ()

    (Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802)

Registered author(s):

    The majority of reverse auctions for procurement use a single-attribute (price) format while providing constraints on nonprice attributes such as quality and lead time. Alternatively, a buyer could choose to conduct a multiattribute auction where bidders can specify both a price and levels of nonprice attributes. While such an auction may provide higher theoretical utility to the buyer, it is not clear that this theoretical improvement will be realized given the increased complexity of the auction. In this research, we present an ascending auction mechanism for a buyer whose utility function is known and dependent on three attributes. Motivated by a supply chain procurement problem setting, we consider quality and lead time for the two attributes in addition to price. The auction mechanism provides the bidders with restricted feedback regarding the buyer's utility function. We explore, experimentally, the performance of this multiattribute auction mechanism as compared to a price-only auction mechanism. Compared with the price-only auction, we find that our mechanism design is effective in increasing both buyer utility and bidder (supplier) profits.

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    File URL: http://dx.doi.org/10.1287/mnsc.1050.0433
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 51 (2005)
    Issue (Month): 12 (December)
    Pages: 1753-1762

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    Handle: RePEc:inm:ormnsc:v:51:y:2005:i:12:p:1753-1762
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    1. Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 94-109, February.
    2. Damian R. Beil & Lawrence M. Wein, 2003. "An Inverse-Optimization-Based Auction Mechanism to Support a Multiattribute RFQ Process," Management Science, INFORMS, vol. 49(11), pages 1529-1545, November.
    3. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 69-85.
    4. Cramton, Peter, 1998. "Ascending auctions," European Economic Review, Elsevier, vol. 42(3-5), pages 745-756, May.
    5. Peter Cramton & John McMillan & Paul Milgrom & Bradley Miller & Bridger Mitchell & Daniel Vincent & Robert Wilson, 1998. "Simultaneous Ascending Auctions with Package Bidding," Papers of Peter Cramton 98cra2, University of Maryland, Department of Economics - Peter Cramton.
    6. Fernando Branco, 1997. "The Design of Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 63-81, Spring.
    7. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, vol. 18(1), pages 1-22, January.
    8. Che, Y.K., 1991. "Design Competition through Multidimensional Auctions," Working papers 9123, Wisconsin Madison - Social Systems.
    9. Brewer, Paul J. & Plott, Charles R., . "A Binary Conflict Ascending Price (BICAP) Mechanism for the Decentralized Allocation of the Right to Use Railroad Tracks," Working Papers 887, California Institute of Technology, Division of the Humanities and Social Sciences.
    10. Steven R. Williams, 1999. "A characterization of efficient, bayesian incentive compatible mechanisms," Economic Theory, Springer, vol. 14(1), pages 155-180.
    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. Alvin E. Roth & Axel Ockenfels, . "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," Papers on Strategic Interaction 2002-32, Max Planck Institute of Economics, Strategic Interaction Group.
    13. Jeffrey S. Banks & John O. Ledyard & David P. Porter, 1989. "Allocating Uncertain and Unresponsive Resources: An Experimental Approach," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 1-25, Spring.
    14. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
    15. Mark Armstrong, 2000. "Optimal Multi-Object Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 455-481.
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