Optimal Procurement when Sellers Receive Competing Offers

Speaker: Prof Justin Burkett

Affiliation: Georgia Tech

Zoom: https://uqz.zoom.us/j/82603079317

Abstract: We study the problem faced by a buyer charged with procuring a service from one of several potential sellers before a deadline. The primary challenge faced by the buyer is that the sellers’ opportunity costs of providing the service evolve over time, for example because the sellers obtain random outside offers from many other buyers over time. We show that the optimal mechanism for the buyer in this setting interacts with the sellers at just the initial time and the deadline. At the initial time, the sellers pre-purchase a bid for an auction to be run at the deadline. At the deadline, the sellers each have the opportunity to adjust their bid upwards (to reflect an increase in their costs) before the auction concludes. We use the optimal mechanism as a benchmark to compare two simpler mechanisms, an optimal mechanism conducted at just the initial time and an optimal mechanism conducted at just the deadline. Our results suggest that the mechanism conducted at the deadline tends to be both more efficient and generate more value for the buyer, especially if there is competition among sellers. We discuss the potential application of the optimal mechanism to various industries, including marketplaces for truckload transportation and short-term jobs.