An optimal efficient multi-attribute auction for transportation procurement with carriers having multi-unit supplies

Abstract

This paper studies optimal efficient multi-attribute (price, delivery time, and service quality) transportation procurement auction design, given that the carriers have multi-unit supplies. A shipper wants to procure a certain amount of transportation service from a set of potential carriers that have private information on their own unit costs, transportation time, supply capacity, and service quality. We propose an auction to minimize the total cost incurred from procurement, delivery delay, and low service quality. We show that the auction is incentive-compatible, individually-rational, and allocative-efficient. Moreover, we discuss the optimality of the mechanism and show that it minimizes the shipper's expected cost among all the efficient mechanisms that are incentive-compatible and individually-rational. This study is the first that proposes an optimal and efficient multi-attribute multi-unit auction for transportation procurement in the setting where the carriers have multi-unit supplies and their capacity information is private.