IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2512.09129.html

Procurement without Priors: A Simple Mechanism and its Notable Performance

Author

Listed:
  • Dirk Bergemann
  • Tibor Heumann
  • Stephen Morris

Abstract

How should a buyer design procurement mechanisms when suppliers' costs are unknown, and the buyer does not have a prior belief? We demonstrate that simple mechanisms - that share a constant fraction of the buyer utility with the seller - allow the buyer to realize a guaranteed positive fraction of the efficient social surplus across all possible costs. Moreover, a judicious choice of the share based on the known demand maximizes the surplus ratio guarantee that can be attained across all possible (arbitrarily complex and nonlinear) mechanisms and cost functions. Similar results hold in related nonlinear pricing and optimal regulation problems.

Suggested Citation

  • Dirk Bergemann & Tibor Heumann & Stephen Morris, 2025. "Procurement without Priors: A Simple Mechanism and its Notable Performance," Papers 2512.09129, arXiv.org.
    • Handle: RePEc:arx:papers:2512.09129
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2512.09129
    File Function: Latest version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    2. Gabriel Carroll, 2017. "Robustness and Separation in Multidimensional Screening," Econometrica, Econometric Society, vol. 85, pages 453-488, March.
    3. Yingni Guo & Eran Shmaya, 2025. "Robust Monopoly Regulation," American Economic Review, American Economic Association, vol. 115(2), pages 599-634, February.
    4. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    5. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    6. R. L. Hall & C. J. Hitch, 1939. "Price Theory And Business Behaviour," Oxford Economic Papers, Oxford University Press, vol. 0(1), pages 12-45.
    7. Bergemann, Dirk & Heumann, Tibor & Morris, Stephen, 2023. "Cost Based Nonlinear Pricing," CEPR Discussion Papers 18374, C.E.P.R. Discussion Papers.
    8. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    9. Dirk Bergemann & Karl H. Schlag, 2012. "Pricing Without Priors," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 12, pages 405-415, World Scientific Publishing Co. Pte. Ltd..
    10. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    11. Benjamin Brooks & Songzi Du, 2021. "Optimal Auction Design With Common Values: An Informationally Robust Approach," Econometrica, Econometric Society, vol. 89(3), pages 1313-1360, May.
    12. Neeman, Zvika, 2003. "The effectiveness of English auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 214-238, May.
    13. Leon Yang Chu & David E. M. Sappington, 2007. "Simple Cost-Sharing Contracts," American Economic Review, American Economic Association, vol. 97(1), pages 419-428, March.
    14. Debasis Mishra & Sanket Patil & Alessandro Pavan, 2025. "Robust procurement design," Papers 2512.08177, arXiv.org.
    15. William P. Rogerson, 2003. "Simple Menus of Contracts in Cost-Based Procurement and Regulation," American Economic Review, American Economic Association, vol. 93(3), pages 919-926, June.
    16. Garrett, Daniel F., 2014. "Robustness of simple menus of contracts in cost-based procurement," Games and Economic Behavior, Elsevier, vol. 87(C), pages 631-641.
    17. Rahul Deb & Anne-Katrin Roesler, 2024. "Multi-Dimensional Screening: Buyer-Optimal Learning and Informational Robustness," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(5), pages 2744-2770.
    18. Vinicius Carrasco & Vitor Farinha Luz & Paulo K. Monteiro & Humberto Moreira, 2019. "Robust mechanisms: the curvature case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 203-222, July.
    19. Jerry Anunrojwong & Santiago R. Balseiro & Omar Besbes, 2023. "Robust Auction Design with Support Information," Papers 2305.09065, arXiv.org, revised Jan 2025.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wong, Adam Chi Leung, 2014. "The choice of the number of varieties: Justifying simple mechanisms," Journal of Mathematical Economics, Elsevier, vol. 54(C), pages 7-21.
    2. Vinicius Carrasco & Vitor Farinha Luz & Paulo K. Monteiro & Humberto Moreira, 2019. "Robust mechanisms: the curvature case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 203-222, July.
    3. Dirk Bergemann & Alessandro Pavan, 2015. "Introduction to JET Symposium Issue on "Dynamic Contracts and Mechanism Design"," Cowles Foundation Discussion Papers 2016, Cowles Foundation for Research in Economics, Yale University.
    4. Garrett, Daniel F., 2021. "Payoff implications of incentive contracting," Theoretical Economics, Econometric Society, vol. 16(4), November.
    5. Escobar, Juan F. & Pulgar, Carlos, 2017. "Motivating with simple contracts," International Journal of Industrial Organization, Elsevier, vol. 54(C), pages 192-214.
    6. Heidrun Hoppe & Benny Moldovanu & Emre Ozdenoren, 2011. "Coarse matching with incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 75-104, May.
    7. Asseyer, Andreas, 2025. "Information orders in screening problems," Journal of Economic Theory, Elsevier, vol. 225(C).
    8. Garrett, Daniel F., 2014. "Robustness of simple menus of contracts in cost-based procurement," Games and Economic Behavior, Elsevier, vol. 87(C), pages 631-641.
    9. Bergemann, Dirk & Pavan, Alessandro, 2015. "Introduction to Symposium on Dynamic Contracts and Mechanism Design," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 679-701.
    10. Shao, Ran, 2016. "Generalized coarse matching," Games and Economic Behavior, Elsevier, vol. 100(C), pages 142-148.
    11. Frank Yang, 2021. "Costly Multidimensional Screening," Papers 2109.00487, arXiv.org, revised Sep 2025.
    12. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    13. Nicolás Hernández Santibáñez & Dylan Possamaï & Chao Zhou, 2017. "Bank monitoring incentives under moral hazard and adverse selection," Working Papers hal-01435460, HAL.
    14. X. Ruiz del Portal, 2012. "Conditions for incentive compatibility in models with multidimensional allocation functions and one-dimensional types," Review of Economic Design, Springer;Society for Economic Design, vol. 16(4), pages 311-321, December.
    15. Nicol'as Hern'andez Santib'a~nez & Dylan Possamai & Chao Zhou, 2017. "Bank monitoring incentives under moral hazard and adverse selection," Papers 1701.05864, arXiv.org, revised Jan 2019.
    16. Vinicius Carrasco & Vitor Farinha Luz & Paulo Monteiro & Humberto Moreira, 2015. "Robust Selling Mechanisms," Textos para discussão 641, Department of Economics PUC-Rio (Brazil).
    17. Jason Hartline & Aleck Johnsen & Yingkai Li, 2025. "Scale-robust Auctions," Papers 2510.21231, arXiv.org.
    18. B. Caillaud & R. Guesnerie & P. Rey & J. Tirole, 1988. "Government Intervention in Production and Incentives Theory: A Review of Recent Contributions," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 1-26, Spring.
    19. Han, Jun & Weber, Thomas A., 2023. "Price discrimination with robust beliefs," European Journal of Operational Research, Elsevier, vol. 306(2), pages 795-809.
    20. Mishra, Debasis & Patil, Sanket, 2025. "Undominated monopoly regulation," Journal of Economic Theory, Elsevier, vol. 228(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2512.09129. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.