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Effects of Information Disclosure Under First- and Second-Price Auctions in a Supply Chain Setting

Author

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  • Ying-Ju Chen

    () (University of California, Berkeley, California 94720)

  • Gustavo Vulcano

    () (Stern School of Business, New York University, New York, New York 10012)

Abstract

We study a supply chain where an upstream supplier auctions his inventory or capacity as a bundle. The importance of this setting is twofold: From a practical point of view, there are several examples, both in manufacturing (e.g., auctioning the capacity of a wafer fabrication facility) and service industries (e.g., auctioning the sponsorship of a website), where a supplier's capacity is sold as a single piece; from a theoretical side, it highlights the information asymmetry introduced on the downstream supply chain parties when the auction result is disclosed. We formulate the problem as a two-stage supply chain comprising a single supplier and two resellers. Each reseller receives a signal of the consumer demand and bids for the capacity of the supplier. The supplier announces the winner as well as the auction price. Both resellers can get additional units in a procurement market and then engage in Cournot competition in the consumer market. We analyze the impact of the information elicited by the supplier in the early stage of the game. We characterize sufficient conditions for the existence of equilibrium behavior, derive the equilibrium bidding functions under both first- and second-price auctions, and show that the bidding functions are lower than the corresponding ones for a single-shot auction without resale. Our computational experiments indicate that both the supplier and resellers are better off running a second-price auction and that consumers benefit if the resellers have very different signals on the total demand. Overall, our results suggest that traditional auctions may have a profound impact in the context of a supply chain because of the information disclosure in the upstream stages.

Suggested Citation

  • Ying-Ju Chen & Gustavo Vulcano, 2009. "Effects of Information Disclosure Under First- and Second-Price Auctions in a Supply Chain Setting," Manufacturing & Service Operations Management, INFORMS, vol. 11(2), pages 299-316, September.
  • Handle: RePEc:inm:ormsom:v:11:y:2009:i:2:p:299-316
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    File URL: http://dx.doi.org/10.1287/msom.1080.0220
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    References listed on IDEAS

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    Cited by:

    1. Timothy N. Cason & Karthik N. Kannan & Ralph Siebert, 2011. "An Experimental Study of Information Revelation Policies in Sequential Auctions," Management Science, INFORMS, vol. 57(4), pages 667-688, April.
    2. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.

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