Who's Afraid of Strategic Behavior? Mechanisms for Group Purchasing

We study mechanisms to manage group purchasing among a set of buyers of a given product with a concave purchase cost function. The buyers are cost‐sensitive and willing to buy a range of product quantities at different prices. We investigate two types of mechanisms that can be used by a group purchasing organization (GPO): (a) ordering mechanisms where the buyers, without divulging private information, choose their order quantities and pay for them according to a given cost‐sharing rule or a fixed price; and (b) bidding mechanisms where the buyers announce their valuations for different quantities and the GPO determines their purchase quantities and cost‐shares according to pre‐announced schemes. Under the choice of appropriate cost‐sharing rules, we introduce a sequential joint ordering mechanism and a family of ordering strategies under which some buyers’ strategic deviations never worsen other buyers. We propose a class of bidding mechanisms with some desirable properties and show that a Nash equilibrium bid schedule always exists wherein all buyers’ profits are at least as high as those under truthful bidding. In our proposed mechanisms, some buyers’ strategic deviation from truthful bidding can only make the others better off. Thus, buyers need not worry about strategic behavior of their counterparts. We compare the performances of the system under different mechanisms and show the superiority of our proposed bidding mechanism. We show that the profits generated by our proposed bidding mechanisms under the proportional cost‐sharing rule are never dominated by the maximum profits of the first‐best fixed price

Mechanism design for dynamic double auctions

Cette thèse a pour objet de concevoir des mécanismes d'allocation dans le contexte des enchères doubles dynamiques (achats groupés, bourses électroniques). Le principal défi inhérent à la conception de tels mécanismes est d'aboutir à un résultat socialement optimal alors que la dynamique induit une incertitude sur les arrivées et départs des participants de l'enchère ainsi que sur les valuations qui peuvent être fluctuantes. Dans cette thèse, nous proposons des mécanismes qui sont efficaces, incitatifs et garantissant l'équilibre du budget. La définition de ces mécanismes s'appuient sur les algorithmes d'appareillage pour des graphes bipartis (technique d'augmentation et réduction) ainsi que sur une méthode générale prenant en compte le comportement des participants.This thesis addresses the problem of designing mechanisms that lead to socially desirable outcomes in dynamic double auction markets such as stock exchanges and group buying. The main challenge of the design is dealing with the uncertainty posed by the participants who are dynamically arriving and departing and their valuations vary over time. The thesis demonstrates the difficulties in designing mechanisms with desirable properties such as truthfulness, efficiency and budget balance. It also provides dedicated mechanisms satisfying those properties by using augmentation, reduction and behaviour-based approaches

Three Essays on Managing Competitive Bid Procurement.

Procurement has emerged as a critical function, yet a challenging topic, since in many firms procurement operations are complex, and laced with misaligned incentives and information asymmetry between buyers and suppliers. This dissertation explores three different contexts that arise from a buyer’s lack of information. The first essay explores the value of cost modeling in competitive bid procurement, to understand if, how and when cost modeling should be deployed. I show that although bid competition sometimes duplicates the information gleaned by cost modeling, the latter can still be beneficial when it helps the buyer set an effective reserve price. Then I analyze how the buyer can gain the most benefit through cost modeling. Specifically, I characterize which supplier(s) to learn about, which portion(s) of the costs to learn, and how deeply and broadly the buyer should learn for general supply base topologies. The second essay studies the problem that a buyer's request for quotes (RFQ) contains an error that triggers re-design and associated supplier windfall profit. Surprisingly, I find that RFQ error encourages suppliers to submit lower bids with anticipation of future windfall profit. I also find that supplier disparity in error-detecting expertise generally hurts the buyer. Furthermore, I propose a "pre-pay" and “error-bounty” approach to stem supplier windfall profit and induce knowledgeable suppliers to divulge the existence of RFQ error. The third essay considers whether a buyer should exclude or include an incumbent supplier in the auction. Excluding the incumbent allows the buyer to set an aggressive reserve price while including the incumbent in the auction drums up competition with one more bidder. I find that the buyer’s decision depends on the incumbent’s and entrants’ cost distributions: When the incumbent’s cost is expected to be substantially different from the entrants’ (either much lower or much higher) and has low uncertainty, excluding the incumbent is the better option; Conversely, when the incumbent’s cost is comparable to the entrants’ and has similar amount of uncertainty, the buyer prefers inviting the incumbent to the auction.PhDBusiness AdministrationUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/102447/1/yinyan_1.pd

Agent-based modeling as an approach to evaluate price discovery process in double auction markets

PURPOSE OF THE STUDY This study investigates how agent-based modeling can be used to evaluate the price discovery process in double auction markets. The study is limited to single-unit continuous double auctions, and especially to constrained zero-intelligence (ZI-C) trader markets first introduced by Gode and Sunder (1993a). STRUCTURE First, I evaluate the earlier models and construct an agent-based model using the guidelines from the literature. In particular, the idea is to create an agent-based model as simple as possible, because the earlier literature in agent-based modeling lacks synthesis about the modeling principles used. After having created the model, I compare its results comprehensively against the earlier literature. In addition, I concentrate especially to evaluating the methods of Cliff and Bruten (1997) to analyze ZI-C trader markets as their ideas have influenced literature substantially, but have been recently questioned by Othman (2008). RESULTS The results indicate that the methods of Cliff and Bruten (1997) can be improved. Especially, it appears that the probability density functions (PDF) of bids and asks proposed by Cliff and Bruten (1997) have to be constructed in a slightly different manner than what was originally proposed. However, the results also suggest that after refining the ideas of Cliff and Bruten (1997), it is possible to describe the PDF of transaction prices in ZI-C trader markets. Generally, the results suggest that the earlier literature has overlooked the importance of the evolution in the trader population participating in the ZI-C market. In addition, the results indicate that the trading in ZI-C trader markets closely mimics a sequence of trades that would take place on the Marshallian path, which has been previously suggested, but not comprehensively analyzed by Brewer et al. (2002)