Transportation service procurement in periodic sealed double auctions with stochastic demand and supply

Abstract

This paper presents a double auction model to study transportation service procurement (TSP) in a dynamic single-lane transportation environment. Although this paper is motivated by a third-party logistics e-marketplace, the underlying model is applicable in the general bilateral exchange contexts. We first address TSP in a transportation spot market with stochastic but balanced or “symmetric” demand and supply. A periodic sealed double auction (PSDA) is proposed for TSP. Using a packing approach that considers possible bids and/or asks in an integral manner, we then devise a modified PSDA (M-PSDA) to address TSP with “asymmetric” demand and supply.We show that both PSDA and M-PSDA realize incentive compatibility and asymptotic efficiency. Also, the auctioneer is likely to gain higher profits from PSDA with a relatively short auction length. Under asymmetric demand and supply, this optimal auction length increases with the degree of supply–demand imbalance. However, it is optimal to run the auction (either PSDA or M-PSDA) with a relatively large auction length, when maximizing either the social welfare or the utility of shippers and carriers (agents). Finally, when the degree of supply–demand imbalance is low, the auctioneer’s myopic optimal expected profit per unit of time under supply–demand imbalance is larger than that under symmetric demand and supply. But the agents’ expected utility per unit of time under supply–demand imbalance significantly decreases when the degree of supply–demand imbalance increases, thereby resulting in a lower market efficiency.