Skip to main content
SpringerLink
Log in

Procurement Auctions: Improving Efficient Winning Bids Through Multi-bilateral Negotiations

  • Conference paper
  • First Online:
Book cover Outlooks and Insights on Group Decision and Negotiation (GDN 2015)

Part of the book series: Lecture Notes in Business Information Processing ((LNBIP,volume 218))

Included in the following conference series:

  • 1133 Accesses

Abstract

Auctions have been used in the procurement of heterogeneous products, produced and delivered after the auctions conclude, as well as services. In these situations the quasi-linearity assumption of the buyer and the sellers is violated and the price and other attributes are interrelated. The relationship between price and other attributes is illustrated here with two exchanges in which the market participants are characterized by Cobb-Douglass production functions. It shown that even in the simplest case, when the contract curve is linear, the price and other attributes are interrelated. This relationship becomes more complex for non-linear contract curves. The paper shows that in these cases the auction does not maximize social welfare, i.e., it is an inefficient mechanism. Furthermore, even if the winning bid is an efficient solution, a win-win solution which dominates this bid may be possible. The buyer needs to engage in multi-bilateral negotiations in order to seek joint-improvements. The purpose of the negotiation is to search for side-payments.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 39.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 54.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    Auction theory employs social welfare which is an additive function. When the goods are non-configurable, then auctions maximize additive social welfare. They do not, however, maximize multiplicative social welfare. When the goods are configurable then auctions maximize neither additive nor multiplicative social welfare.

References

  1. Christopher, M.: The agile supply chain: competing in volatile markets. Ind. Mark. Manage. 29(1), 37–44 (2000)

    Article  Google Scholar 

  2. Jain, V., Panchal, G.B., Kumar, S.: Universal supplier selection via multi-dimensional auction mechanisms for two-way competition. Omega 47, 127–137 (2014)

    Article  Google Scholar 

  3. Kraljic, P.: Purchasing must become supply management. Harvard Bus. Rev. 83(5), 109–117 (1983)

    Google Scholar 

  4. Bellantuono, N., et al.: Multi-attribute auction and negotiation for e-procurement of logistics. Group Decis. Negot. 23(3), 421–441 (2014)

    Article  Google Scholar 

  5. Li, Z., Ryan, J.K., Sun, D.: Multi-attribute procurement contracts. Int. J. Prod. Econ. 159, 137–146 (2014)

    Article  Google Scholar 

  6. Huang, H., et al.: Hybrid mechanism for heterogeneous e-procurement involving a combinatorial auction and bargaining. Electron. Commun. Res. Apps 12(3), 181–194 (2013)

    Article  Google Scholar 

  7. Rao, C., Zhao, Y., Ma, S.: Procurement decision making mechanism of divisible goods based on multi-attribute auction. Electron. Commun. Res. Apps 11(4), 397–406 (2012)

    Article  Google Scholar 

  8. Romero-Morales, D., Steinberg, R.: Revenue deficiency under second-price auctions in a supply-chain setting. Eur. J. Oper. Res. 233(1), 131–144 (2014)

    Article  Google Scholar 

  9. Holt, C.A., Sherman, R.: Risk aversion and the winner’s curse. South. Econ. J. 81, 7–22 (2014)

    Article  Google Scholar 

  10. Hass, C., Bichler, M., Guler, K.: Optimization-based decision support for scenario analysis in electronic sourcing markets. Electron. Commun. Res. Apps 12(3), 152–165 (2013)

    Article  Google Scholar 

  11. Yang, N., Liao, X., Huang, W.W.: Decision support for preference elicitation in multi-attribute electronic procurement auctions through an agent-based intermediary. Decis. Support Syst. 57, 127–138 (2014)

    Article  Google Scholar 

  12. Kersten, G.E.: Multi-attribute procurement auctions: efficiency and social welfare in theory and practice. Decis. Anal. 11(4), 215–232 (2014)

    Article  Google Scholar 

  13. Smart, A., Harrison, A.: Reverse auctions as a support mechanism in flexible supply chains. Int. J. of Logist. 5(3), 275–284 (2002)

    Article  Google Scholar 

  14. Duenyas, I., Hu, B., Beil, D.R.: Simple auctions for supply contracts. Manage. Sci. 59(10), 2332–2342 (2013)

    Article  Google Scholar 

  15. Ferrin, B.G., Plank, R.E.: Total cost of ownership models: an exploratory study. J. Supply Chain Manage. 38(3), 18–29 (2002)

    Article  Google Scholar 

  16. Johnson, M.D., Sawaya, W.J., Natarajarathinam, M.: A methodology for modelling comprehensive international procurement costs. Int. J. of Prod. Res. 51(18), 5549–5564 (2013)

    Article  Google Scholar 

  17. Chen-Ritzo, C.H., et al.: Better, faster, cheaper: an experimental analysis of a multiattribute reverse auction mechanism with restricted information feedback. Manage. Sci. 51(12), 1753–1762 (2005)

    Article  Google Scholar 

  18. Lewis, G., Bajari, P.: Procurement contracting with time incentives: theory and evidence. Q. J. Econ. 126(3), 1173–1211 (2011)

    Article  Google Scholar 

  19. Bichler, M., Kalagnanam, J.: Configurable offers and winner determination in multi-attribute auctions. Eur. J. Oper. Res. 160(2), 380–394 (2005)

    Article  Google Scholar 

  20. David, E., Azoulay-Schwartz, R., Kraus, S.: An english auction protocol for multi-attribute items. In: Padget, J., Shehory, O., Parkes, D.C., Sadeh, N.M., Walsh, W.E. (eds.) AMEC 2002. LNCS (LNAI), vol. 2531, pp. 52–68. Springer, Heidelberg (2002)

    Chapter  Google Scholar 

  21. Kameshwaran, S., et al.: Multiattribute electronic procurement using goal programming. Eur. J. Oper. Res. 179(2), 518–536 (2007)

    Article  Google Scholar 

  22. Kersten, G.E., Pontrandolfo, P., and Wu, S.: A multiattribute auction procedure and its implementation. In: HICSS 45, Hawaii. IEEE (2012)

    Google Scholar 

  23. Besanko, D., Braeutigam, R.: Microeconomics. Wiley, NewYork (2010)

    Google Scholar 

  24. Kersten, G.E.: Are procurement auctions good for society and for buyers? In: Hernández, J.E., Kersten, G.E., Zaraté, P. (eds.) GDN 2014. LNBIP, vol. 180, pp. 30–40. Springer, Heidelberg (2014)

    Google Scholar 

  25. Mumpower, J.L.: The judgement policies of negotiators and the structure of negotiation problems. Manage. Sci. 37(10), 1304–1324 (1991)

    Article  Google Scholar 

  26. Jap, S.D.: Online reverse auctions: issues, themes, and prospects for the future. J. Acad. Mark. Sci. 30(4), 506–525 (2002)

    Article  Google Scholar 

  27. Santamaría, N.: An Analysis of Scoring and Buyer-Determined Procurement Auctions. Production and Operations Management, (2015, in print)

    Google Scholar 

Download references

Acknowledgments

This work has been supported by the grants from the Natural Sciences and Engineering Research Council of Canada (NSERC), Concordia University (Canada). I am grateful to the reviewer for their insightful comments.

Author information

Authors and Affiliations

  1. InterNeg Research Centre and J. Molson School of Business, Concordia University, Montreal, PQ, Canada

    Gregory E. Kersten

Authors
  1. Gregory E. Kersten
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Gregory E. Kersten .

Editor information

Editors and Affiliations

  1. Warsaw School of Economics, Warsaw, Poland

    Bogumił Kamiński

  2. Concordia University, Montreal, Québec, Canada

    Gregory E. Kersten

  3. Warsaw School of Economics, Warsaw, Poland

    Tomasz Szapiro

Rights and permissions

Reprints and permissions

Copyright information

© 2015 Springer International Publishing Switzerland

About this paper

Cite this paper

Kersten, G.E. (2015). Procurement Auctions: Improving Efficient Winning Bids Through Multi-bilateral Negotiations. In: Kamiński, B., Kersten, G., Szapiro, T. (eds) Outlooks and Insights on Group Decision and Negotiation. GDN 2015. Lecture Notes in Business Information Processing, vol 218. Springer, Cham. https://doi.org/10.1007/978-3-319-19515-5_32

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-19515-5_32

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-19514-8

  • Online ISBN: 978-3-319-19515-5

  • eBook Packages: Computer ScienceComputer Science (R0)

Publish with us

Policies and ethics

Search

Navigation