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

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Outlooks and Insights on Group Decision and Negotiation (GDN 2015)

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

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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.

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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.

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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.

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Authors and Affiliations

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

    Gregory E. Kersten

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  1. Gregory E. Kersten
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Correspondence to Gregory E. Kersten .

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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

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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

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

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  • Online ISBN: 978-3-319-19515-5

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