Compact bidding languages and supplier selection for markets with economies of scale and scope

Abstract

Combinatorial auctions have been used in procurement markets with economies of scope. Preference elicitation is already a problem in single-unit combinatorial auctions, but it becomes prohibitive even for small instances of multiunit combinatorial auctions, as suppliers cannot be expected to enumerate a sufficient number of bids that would allow an auctioneer to find the efficient allocation. Auction design for markets with economies of scale and scope are much less well understood. They require more compact and yet expressive bidding languages, and the supplier selection typically is a hard computational problem. In this paper, we propose a compact bidding language to express the characteristics of a supplier's cost function in markets with economies of scale and scope. Bidders in these auctions can specify various discounts and markups on overall spend on all items or selected item sets, and specify complex conditions for these pricing rules. We propose an optimization formulation to solve the resulting supplier selection problem and provide an extensive experimental evaluation. We also discuss the impact of different language features on the computational effort, on total spend, and the knowledge representation of the bids. Interestingly, while in most settings volume discount bids can lead to significant cost savings, some types of volume discount bids can be worse than split-award auctions in simple settings.

Do core-selecting Combinatorial Clock Auctions always lead to high efficiency? An experimental analysis of spectrum auction designs

“…Simplification and compact bid languages, which allow expressing the main synergies of a value model with a few parameters only, might be a remedy and further research is needed in this area. Such approaches have been used for procurement (Bichler et al, 2011a), but also for spectrum auctions in the field (Goeree and Holt, 2010).…”

Supplier Selection by Multi-attribute Combinatorial Bidding

“…Although essential to support sourcing decisions, academic literature on multi-criteria combinatorial auctions is still scarce [6], and focuses on theoretical models and software applications, especially ecommerce. The combinatorial problem involving multiple items, multiple suppliers and multiple attributes for a decision has not been widely reported in the literature and is known as puzzle problem [18].…”

Multi-period supplier selection under price uncertainty

“…Sadrian and Yoon (1994) and Katz et al (1994) present MILP formulations for the problem in the presence of business volume discounts. Bichler et al (2011) introduce a comprehensive bidding language that allows for elaborate discount structures. Total quantity and incremental quantity discounts, as well as lump sum discounts and markups, with conditions on spend or purchase quantities can be expressed with this bidding language.…”

“…It is believed that CombineNet delivered savings of $4.4 billion in these events. Bichler et al (2011) proposed a bidding language and an optimization model to express and evaluate more complex offers.…”