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Optimal Descending Mechanisms for Constrained Procurement

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Listed:
  • Shivam Gupta
  • Wei Chen
  • Milind Dawande
  • Ganesh Janakiraman

Abstract

type="main" xml:id="poms12385-abs-0001"> Descending mechanisms for procurement (or, ascending mechanisms for selling) have been well-recognized for their simplicity from the viewpoint of bidders—they require less bidder sophistication as compared to sealed-bid mechanisms. In this study, we consider procurement under each of two types of constraints: (1) Individual/Group Capacities: limitations on the amounts that can be sourced from individual and/or subsets of suppliers, and (2) Business Rules: lower and upper bounds on the number of suppliers to source from, and on the amount that can be sourced from any single supplier. We analyze two procurement problems, one that incorporates individual/group capacities and another that incorporates business rules. In each problem, we consider a buyer who wants to procure a fixed quantity of a product from a set of suppliers, where each supplier is endowed with a privately known constant marginal cost. The buyer's objective is to minimize her total expected procurement cost. For both problems, we present descending auction mechanisms that are optimal mechanisms. We then show that these two problems belong to a larger class of mechanism design problems with constraints specified by polymatroids, for which we prove that optimal mechanisms can be implemented as descending mechanisms.

Suggested Citation

  • Shivam Gupta & Wei Chen & Milind Dawande & Ganesh Janakiraman, 2015. "Optimal Descending Mechanisms for Constrained Procurement," Production and Operations Management, Production and Operations Management Society, vol. 24(12), pages 1955-1965, December.
    • Handle: RePEc:bla:popmgt:v:24:y:2015:i:12:p:1955-1965
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    File URL: http://hdl.handle.net/10.1111/poms.2015.24.issue-12
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    Cited by:

    1. Bin Hu & Anyan Qi, 2018. "Optimal Procurement Mechanisms for Assembly," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 655-666, October.
    2. Suresh P. Sethi & Sushil Gupta & Vipin K. Agrawal & Vijay K. Agrawal, 2022. "Nobel laureates’ contributions to and impacts on operations management," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4283-4303, December.
    3. Basu, Arnab & Jain, Tarun & Hazra, Jishnu, 2018. "Supplier selection under production learning and process improvements," International Journal of Production Economics, Elsevier, vol. 204(C), pages 411-420.
    4. Xiong, Yangchun & Lam, Hugo K.S. & Hu, Qiaoxuan & Yee, Rachel W.Y. & Blome, Constantin, 2021. "The financial impacts of environmental violations on supply chains: Evidence from an emerging market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).
    5. Qi Feng & Justin Jia & J. George Shanthikumar, 2019. "Dynamic Multisourcing with Dependent Supplies," Management Science, INFORMS, vol. 67(6), pages 2770-2786, June.
    6. Aadhaar Chaturvedi & Elena Katok & Damian R. Beil, 2019. "Split-Award Auctions: Insights from Theory and Experiments," Management Science, INFORMS, vol. 65(1), pages 71-89, January.

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