Combinatorial auctions for supply chain formation

Supply chain formation presents difficult coordination issues for distributed negotiation protocols. Agents must simultaneously negotiate production relationships at multiple levels, with important interdependencies among inputs and outputs at each level. Combinatorial auctions address this problem by global optimization over expressed offers to engage in compound exchanges. A one-shot combinatorial auction that optimizes the reported value of the bids results in optimal allocations with truthful bids. But autonomous self-interested agents have an incentive to bid strategically in an attempt to gain extra surplus. We investigate a particular combinatorial protocol consisting of a one-shot auction and a strategic bidding policy. We experimentally analyze the efficiency and producer surplus obtained in five networks, and compare this performance to that of a distributed, progressive auction protocol with non-strategic bidding. We find that producers can sometimes gain significantly by bidding strategically. However, when the available surplus is small relative to the consumers’ values, the producers’ strategic behavior may prevent the supply chain from forming at all, resulting in zero gains for all agents. We examine the robustness of the combinatorial protocol by investigating agent incentives to deviate, identifying quasi-equilibrium behavior for an example network.