Hybrid Mechanism for Heterogeneous E-Procurement Involving a Combinatorial Auction and Bargaining

Publication Type

Journal Article

Publication Date

5-2013

Abstract

We discuss the design of a hybrid mechanism for e-procurement, which implements a multi-attribute combinatorial auction, followed by a bargaining process to achieve desirable procurement transaction outcomes. For the auction phase of the mechanism, we discuss incentive-compatible bidding strategies for suppliers, and how the buyer should determine the winning suppliers. In the follow-on bargaining phase, the buyer can implement a pricing strategy that views the winning suppliers as though they are in different groups. We develop a model and derive decision conditions for the buyer to formulate procurement strategy in this context. Our most important finding is that, compared with the classical Vickrey–Clarke–Groves mechanism, the proposed mechanism improves the transactional social surplus, by including the possibility of post-auction bargaining. We also consider the likelihood that such a hybrid mechanism will be able to provide sustainable business value so long as there is reasonable symmetry in bargaining power between the buyer and the supplier. We offer some thoughts on how to extend this research with approaches from behavioral economics and experimental methods.

Keywords

Bargaining, Combinatorial auctions, E-procurement, Mechanism design, Myopic best responses, Negotiation, Vickrey–Clarke–Groves mechanism

Discipline

Computer Sciences | E-Commerce

Research Areas

Information Systems and Management

Publication

Electronic Commerce Research and Applications

Volume

12

Issue

3

First Page

181

Last Page

194

ISSN

1567-4223

Identifier

10.1016/j.elerap.2013.03.006

Publisher

Elsevier

Additional URL

http://dx.doi.org/10.1016/j.elerap.2013.03.006

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