Mechanism design in project procurement auctions with cost uncertainty and failure risk

Qian, Xin; Huang, Min; Ching, Wai‐Ki; Lee, Loo Hay; Wang, Xingwei

doi:10.3934/jimo.2018036

Cited by 8 publications

(3 citation statements)

References 31 publications

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“…Noting that non-price attributes could be exogenous, Kostamis et al [26] modeled the sealed-bid and open-bid reverse auctions from the buyer's point of view and showed that the sealed-bid reverse auction would be the best option when suppliers could anticipate intensified competition. Subsequently, many works focused on the development of scoring auctions [2], [3], [36], [38], [45], [46]. Most of such mechanisms developed so far assumed that once the scoring rules are given, the maximum social welfare produced by each supplier could be computed for constructing equilibrium bidding strategies.…”

Section: Literature Reviewmentioning

confidence: 99%

“…To ensure the auction outcomes, bidders shall be perfectly rational, and buyers shall commit to the pre-specified scoring rule before auction [55]. In recent years, MARAs have been applied to many areas, such as supply chain management [44], [45], [48], project management [46] and quality management [12]. Assuming that the buyer has dominating decision-making power, the above studies adopted a principal-agent framework to analyze the buyer's procurement strategy.…”

Section: Literature Reviewmentioning

confidence: 99%

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Mechanism Design of Unknown Bidding Preference and Discrete Cost Structure in Multi-Attribute Reverse Auctions

et al. 2019

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This paper studies a multi-attribute reverse auction in which one manufacturer/buyer purchases multi-unit identical components/goods from a group of capacity-constrained suppliers considering the procurement cost and delivery time. The unknown bidding preference and the discrete cost structure are particularly investigated. Constructing a bi-level distributed decision-making model, a novel iterative multi-attribute reverse auction mechanism embedding negotiation is proposed to improve the procurement efficiency under the decision-making framework. Specifically, in the upper level, the buyer determines the optimal allocation by solving the winner determination problem. To induce suppliers to adjust their delivery times, three guiding strategies are proposed, i.e., the guiding strategy based on the deviation of delivery time (GDD), the guiding strategy based on the deviation of objective function value (GDF), and the guiding strategy randomly based on the deviation of objective function value (GRDF). In the lower level, suppliers adopt the concession strategies for determining the bid price and delivery time in response to the buyer's feedback. The numerical experiments illustrate the effectiveness and applicability of the proposed mechanism by comparing it with the centralized model. When the buyer places higher importance on the procurement cost than on the delivery time, the GRDF achieves the best negotiation outcome; otherwise, the GDF is the buyer's best option. Also, the proposed mechanism is robust to the variance of suppliers' decision parameters and could be a useful procurement tool for the buyer. INDEX TERMS Bidding preference, bi-level distributed decision making, discrete cost structure, negotiation, multi-attribute reverse auction.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Mechanism Design of Unknown Bidding Preference and Discrete Cost Structure in Multi-Attribute Reverse Auctions

et al. 2019

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“…Yet, in practical applications, the 4PL may also have to make decisions under the scenario of asymmetric information. In this case, a game theoretical framework that has generated an impressive volume of research contributions would be employed for the design of auction mechanisms [15, 34–37]. For example, Huang et al [38] considered a one-dimensional mechanism design problem in which a 4PL faces only one 3PL and designed a menu contract to induce the 3PL to exert effort for improving the quality of delivery.…”

Section: Literature Reviewmentioning

confidence: 99%

Mechanism design of incentive-based reverse auctions with loss-averse 3PLs under incomplete attributes

et al. 2018

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As a supply chain solution integrator, fourth party logistics (4PL) has become an important focus for improving the operational efficiency of the logistics industry in recent days. This paper addresses the mechanism design problem of the 4PL for selecting a third party logistics (3PL) provider who involves loss-averse behavior to form a longer-term strategic partnership in multi-attribute reverse auctions. Due to fluctuating costs of energy or labor and unintentional delivery failures like traffic jam or technology malfunctions, we consider two incomplete attributes, namely cost uncertainty and delivery risk. Integrating the loss-averse behavior of 3PLs, based on the prospect theory, the bid decision model is constructed to obtain 3PLs’ bidding strategies. The corresponding efficient and optimal scoring auctions that consist of cost-sharing contract and contingent penalty are developed to maximize the ex ante expected profit of the system or the 4PL depending on whether the 4PL is willing to cooperate or not. Theoretical analysis verified by numerical examples illustrates the advantage of the proposed mechanisms. Impacts of model parameters on the 4PL’s decision are also investigated and managerial insights are presented.

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Bidding Decisions with Nonequilibrium Strategic Thinking in Reverse Auctions

et al. 2019

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This paper considers decisions of bidders with bounded rationality in different thinking levels for a first-price sealed-bid reverse auction. To characterize the nonequilibrium strategic thinking, we construct a mathematical model that incorporates the "level-k decision rule" to iteratively derive closed-form solutions. Then the effects of bidders' heterogeneous beliefs of thinking levels on their bid prices and expected payoffs are investigated. We find that under some assumptions, bidders will exhibit oscillating behavior in their bid prices and expected profits in terms of thinking levels. When the thinking level tends to infinity, the bid prices and expected profits converge to those in the conventional analysis with perfectly rational bidders. An interesting finding from theoretical analysis verified by numerical experiments is that any bidder with a thinking level above two should bid according to level-2 bidder's strategy to achieve the highest expected profit, and in this case the buyer will pay no more than level-2 bidder's bid price.

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Mechanism design in project procurement auctions with cost uncertainty and failure risk

Cited by 8 publications

References 31 publications

Mechanism Design of Unknown Bidding Preference and Discrete Cost Structure in Multi-Attribute Reverse Auctions

Mechanism Design of Unknown Bidding Preference and Discrete Cost Structure in Multi-Attribute Reverse Auctions

Mechanism design of incentive-based reverse auctions with loss-averse 3PLs under incomplete attributes

Bidding Decisions with Nonequilibrium Strategic Thinking in Reverse Auctions

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