Are Procurement Auctions Good for Society and for Buyers?

Winning bids in reverse auctions are efficient solutions (providing that fairly weak assumptions about the bidders are met). The auctions are efficient, under the assumption that the utilities of all participants are quasi-linear. Typically, this assumption is unrealistic. If that is the case, auctions are inefficient mechanisms. This paper outlines the limitations and impracticability of the quasi-linearity assumption and proposes augmenting reverse auctions with negotiations. It shows that when the efficient frontier is concave, then it is possible to improve the winning bid through negotiations that follow auctions.

[1]  Charles A. Holt,et al.  Risk Aversion and Incentive Effects , 2002 .

[2]  Erik Brynjolfsson,et al.  Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers , 2003, Manag. Sci..

[3]  Sofia Lundberg,et al.  The pivotal nature of award methods in green public procurement , 2011 .

[4]  H. Raiffa,et al.  Negotiation Analysis: The Science and Art of Collaborative Decision Making , 2003 .

[5]  Ho Soo Lee,et al.  Special Issue: 2002 Franz Edelman Award for Achievement in Operations Research and the Management Sciences: Combinatorial and Quantity-Discount Procurement Auctions Benefit Mars, Incorporated and Its Suppliers , 2003, Interfaces.

[6]  Eli M. Snir,et al.  Contractors’ and Agency Decisions and Policy Implications in A+B Bidding , 2015 .

[7]  T. Minahan.  5 strategies for high-performance procurement , 2005 .

[8]  Martin Bichler,et al.  Software frameworks for advanced procurement auction markets , 2006, CACM.

[9]  K. Upton,et al.  A modern approach , 1995 .

[10]  H. Raiffa,et al.  GAMES AND DECISIONS; INTRODUCTION AND CRITICAL SURVEY. , 1958 .

[11]  Stefan Strecker,et al.  Information revelation in multiattribute English auctions: A laboratory study , 2010, Decis. Support Syst..

[12]  Jeryl L. Mumpower,et al.  The judgement policies of negotiators and the structure of negotiation problems , 1991 .

[13]  H. Varian,et al.  When Do Market Games Have Transferable Utility , 1985 .

[14]  H. Raiffa.  The Art & Science of Negotiation , 1983 .

[15]  Pallab Sanyal,et al.  Competitive bidding for health insurance contracts: lessons from the online HMO auctions , 2012, International Journal of Health Care Finance and Economics.

[16]  R. L. Keeney,et al.  Decisions with Multiple Objectives: Preferences and Value Trade-Offs , 1977, IEEE Transactions on Systems, Man, and Cybernetics.