A Multi-Attribute Auction Format for Procurement with Limited Disclosure of Buyer’s Preference Structure

Abstract

In this paper, we present a hybrid, two-round procurement auction that can be used when a buyer wants to procure a single unit of a multi-attribute item. In such cases, bids are measured on many attributes like price, quality, reliability, past history of the bidder, geographical distance between the locations of the bidder and the buyer. The problem is even more acute for Global Enterprises where additional attributes like tax and tariff structures of the country of the supplier become important as well. While such multi-attribute bids are commonplace in sealed bid tenders where the analysis of the bids can be carried out after all of them have been placed to determine the winner; it is difficult to handle such multi-attribute bids in other auction formats like English and Dutch auctions. The difficulty arises because in holding multi-attribute forms of English and Dutch auctions, the buyer needs to communicate information about his true preference amongst attributes to the participating suppliers. But by passing the information on preference between various attributes (termed as the preference structure), the buyer risks revealing sensitive strategic information to the suppliers. In this paper, we present a two-phase auction mechanism that guides the multi-attribute bidding of the participating suppliers, but ensures that only limited information about the buyer’s preference structure can be reverse interpreted by the buyers. We also provide results relating to proper choice of the amount of information that should be disclosed in such manner.