Review of Economic Design

, 12:129

Optimal procurement mechanisms for divisible goods with capacitated suppliers

Original Paper

DOI: 10.1007/s10058-008-0046-7

Cite this article as:
Iyengar, G. & Kumar, A. Rev Econ Design (2008) 12: 129. doi:10.1007/s10058-008-0046-7


Procurement auction literature typically assumes that the suppliers are uncapacitated [see, e.g. Dasgupta and Spulber in Inf Econ Policy 4:5–29, 1990 and Che in Rand J Econ 24(4):668–680, 1993]. Consequently, the auction mechanisms award the contract to a single supplier. We study mechanism design in a model where suppliers have limited production capacity, and both the marginal costs and the production capacities are private information. We provide a closed-form solution for the revenue maximizing direct mechanism when the distribution of the cost and production capacities satisfies a modified regularity condition [Myerson in Math Oper Res 6(1):58–73, 1981]. We also present a sealed low bid implementation of the optimal direct mechanism for the special case of identical suppliers. The results in this paper extend to other principle-agent mechanism design problems where the agents have a privately known upper bound on allocation.


Procurement auctions Optimal direct mechanism Capacity constraints Multiple sourcing 

JEL Classification

D24 D44 

Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.Industrial Engineering and Operations Research DepartmentColumbia UniversityNew YorkUSA
  2. 2.Lehman Brothers Inc.New YorkUSA

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