An ascending price procurement auction for multiple items with unit supply

Abstract

In this paper, a supply chain scenario is considered in which an original equipment manufacturer wishes to procure a set of items from a set of suppliers with private costs. Each supplier can provide at most one item. Two ascending price auctions are proposed to implement an efficient allocation for this model. The first converges to a unique competitive equilibrium price of the economy if suppliers bid truthfully. However, because no equilibrium strategy exists for the suppliers, a second auction is designed based on the first, which converges to a second unique competitive equilibrium price. Truthful bidding is a Bayesian Nash equilibrium strategy for suppliers in this auction. We show several practical advantages of our ascending auctions over traditional reverse auctions. Ascending auctions perform better than reverse auctions in two main aspects: (i) information revelation; and (ii) bidder cost determination. Simulation results are reported to validate these claims.