Better, Faster, Cheaper: An Experimental Analysis of a Multiattribute Reverse Auction Mechanism with Restricted Information Feedback

Abstract

The majority of reverse auctions for procurement use a single-attribute (price) format while providing constraints on nonprice attributes such as quality and lead time. Alternatively, a buyer could choose to conduct a multiattribute auction where bidders can specify both a price and levels of nonprice attributes. While such an auction may provide higher theoretical utility to the buyer, it is not clear that this theoretical improvement will be realized given the increased complexity of the auction. In this research, we present an ascending auction mechanism for a buyer whose utility function is known and dependent on three attributes. Motivated by a supply chain procurement problem setting, we consider quality and lead time for the two attributes in addition to price. The auction mechanism provides the bidders with restricted feedback regarding the buyer's utility function. We explore, experimentally, the performance of this multiattribute auction mechanism as compared to a price-only auction mechanism. Compared with the price-only auction, we find that our mechanism design is effective in increasing both buyer utility and bidder (supplier) profits.auctions, experimental economics, supply chain management

Procuring Commodities: First Price Sealed Bid or English Auction?

“…On the other hand, Shachat and Swarthout (2010), find that an EA with buyer assigned bidding credits can provide better outcomes than the FPA for both suppliers and sellers. There is also a large and promising literature on successful reverse auction examples where the quality is determined within the reverse auction, for example Chen-Ritzo et al (2005) and Parkes and Kalagnanam (2005).…”

Optimization Based e-Sourcing

“…Even the laboratory experiments showed encouraging results. Multi-attribute auctions with three different settings were experimented in laboratories: (1) with buyer's scoring function fully revealed for two attributes (Bichler, 2000), (2) with buyer's scoring function not revealed for three attributes (Strecker, 2003), and (3) with partial revelation of the scoring function for three attributes (Chen-Ritzo et al, 2005). All the three showed that multi-attribute auction formats outperform single attribute auctions.…”

Auctioning Incentive Contracts: An Experimental Study

“…Experiments by Bichler (2000) and Chen-Ritzo et al (2005) indicate that MA auctions outperform PO auctions in terms of efficiency, buyer utility, and supplier profits. However, subjects were not incentivized to provide more than the minimum effort on non-price dimensions.…”