Optimal procurement mechanisms for divisible goods with capacitated suppliers

Abstract

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.

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Correspondence to Anuj Kumar.

Additional information

G. Iyengar’s research partially supported by NSF grants CCR-00-09972, DMS-01-04282 and ONR grant N000140310514.

A. Kumar’s research partially supported by NSF grant DMS-01-04282 and ONR grant N000140310514.

The authors would like to thank the anonymous referees for valuable suggestions and comments.

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Iyengar, G., Kumar, A. Optimal procurement mechanisms for divisible goods with capacitated suppliers. Rev Econ Design 12, 129 (2008). https://doi.org/10.1007/s10058-008-0046-7

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Keywords

  • Procurement auctions
  • Optimal direct mechanism
  • Capacity constraints
  • Multiple sourcing

JEL Classification

  • D24
  • D44