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

Abstract

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.

Bidding Decisions with Nonequilibrium Strategic Thinking in Reverse Auctions

“…Myerson (1981), Riley and Samuelson (1981) and Milgrom and Weber (1982) analyzed the bid prices in auctions under different assumptions. In recent years, reverse auctions have been extensively adopted for procurement by government agencies and large companies (Bellantuono et al 2014;Che 1993;Chen 2007;Li and Scheller-Wolf 2011;Qian et al 2018b;Qian et al 2019a, b). A recent review can be referred to Lorentziadis (2016).…”

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

“…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.…”

“…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.…”

Queuing theory-based optimization research on the multi-objective transportation problem of fourth party logistics

“…1,2 In response to these shortcomings, fourth party logistics (4pl) emerge and meets the complex actual transportation needs by integrating 3pl logistics resources. 3,4…”

“…1,2 In response to these shortcomings, fourth party logistics (4pl) emerge and meets the complex actual transportation needs by integrating 3pl logistics resources. 3,4 Path problem is one of the most important problems in logistics, which has always been a hot topic in people's research. The fourth party logistics routing problem (4plrp) is more complex compared with the traditional 3pl routing.…”