Procurement auctions with capacity constrained suppliers

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    In this paper we study two reverse auction formats in a single period setting, the sealed pay-as-bid and the open format, when suppliers are capacity constrained. In the pay-as-bid format we characterize the asymmetric bidding equilibrium for the case of two suppliers with uniformly distributed cost. We find that the pay-as-bid auction allocates business inefficiently and that a supplier's bid is nonincreasing in the opponent's capacity and is typically decreasing in its own capacity. We then characterize a descending price-clock open auction implementation and find that it is optimal and that the buyer's expected cost decreases as capacity is more evenly spread. Finally, we find that the pay-as-bid auction results in a higher expected cost to the buyer as compared to the open auction.

    Original languageEnglish
    Article number13046
    Pages (from-to)987-995
    Number of pages9
    JournalEuropean Journal of Operational Research
    Issue number3
    Publication statusPublished - 16 Dec 2015


    • Asymmetric auctions
    • Auctions/bidding
    • Purchasing


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