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Procurement without Priors: A Simple Mechanism and its Notable Performance

Author

Listed:
  • Dirk Bergemann

    (Yale University)

  • Tibor Heumann

    (Pontificia Universidad Cat—lica de Chile)

  • Stephen Morris

    (Massachusetts Institute of Technology)

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 notably simple mechanisms Ñ those that share a constant fraction of the buyer utility with the seller Ñ 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 non-linear) mechanisms and cost functions. Results apply to 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," Cowles Foundation Discussion Papers 2479, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2479
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    References listed on IDEAS

    as
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