Essays on Procurement Design

This dissertation consists of five papers that analyze the design of procurement mechanisms

Procurement design with loss averse bidders

We show that it is beneficial for a buyer to conduct a multi-stage mechanism if bidders are loss averse. In a first step, we derive a revenue equivalence principle. Fixing the multi-stage structure, the revenue is independent of the chosen payment rule. Secondly, we introduce a simple two-stage mechanism which always leads to a decrease in procurement costs compared to any single-stage auction. Finally we derive the optimal efficient two-stage mechanism

Preferences and decision support in competitive bidding

We examine bidding behavior in first-price sealed-bid and Dutch auctions, which are strategically equivalent under standard preferences. We investigate whether the empirical breakdown of this equivalence is due to (non-standard) preferences or due to the different complexity of the two formats (i.e., a different level of mathematical/individual sophistication needed to derive the optimal bidding strategy). We first elicit measures of individual preferences and then manipulate the degree of complexity by offering various levels of decision support. Our results show that the equivalence of the two auction formats only breaks down in the absence of decision support. This indicates that the empirical breakdown is caused by differing complexity between the two formats rather than non-standard preferences

Imitation perfection : a simple rule to prevent discrimination in procurement

Procurement regulation aimed at curbing discrimination requires equal treatment of sellers. However, Deb and Pai (2017) show that such regulation imposes virtually no restrictions on the ability to discriminate. We propose a simple rule - imitation perfection - that restricts discrimination significantly. It ensures that in every equilibrium bidders with the same value distribution and the same valuation earn the same expected surplus. If all bidders are homogeneous, revenue and social surplus optimal auctions which are consistent with imitation perfection exist. For heterogeneous bidders however, it is incompatible with revenue and social surplus optimization. Thus, a trade-off between non-discrimination and optimality exists

Split-award auctions and supply disruptions

Problem Definition: We consider a buyer that needs to source a fixed quantity. She faces several potential suppliers that might fail to deliver. The buyer conducts a procurement auction to determine contract suppliers and can choose between single-sourcing and multi-sourcing. If contract suppliers fail to deliver, the buyer tries to source from non-contract suppliers but has little bargaining power due to time pressure. Academic/Practical Relevance: The mitigation of supply risks plays an important role in procurement practice but attracted little attention in the academic analysis of procurement auctions. Academic research on multi-sourcing procurement auction typically analyzes these auctions as stand-alone events. In contrast, we investigate the influence of the auction design on the post-auction market structure and identify an effect favoring multi-sourcing. The insights provide procurement managers guidance for their sourcing decisions. Methodology: We apply game-theoretical methods to analyze a stylized model in which a cost-minimizing buyer needs to source from profit-maximizing suppliers who might fail to deliver. The buyer conducts a procurement auction to determine contract suppliers and can choose between single-sourcing and multi-sourcing. If contract suppliers fail to deliver, the buyer tries to source from a non-contract supplier. We assume that in this situation, the non-contract supplier has almost all the bargaining power. Results: First, we show that in such a setting multi-sourcing does not only reduce the supply risk but might also yield lower prices than single-sourcing. The sourcing decision affects the post-auction market structure such that being a non-contract supplier becomes less attractive in case of multi-sourcing. Second, if suppliers are heterogeneous regarding their disruption probabilities, less reliable suppliers will bid more aggressively than their more reliable competitors causing an adverse selection problem. Furthermore, we show that attracting an additional supplier can be risky as it can increase the auction price and the buyer’s total expenses. Managerial Implications: Our analysis reveals a pro-competitive effect of multi-sourcing. This effect is especially important if the buyer’s value for the item is substantially larger than suppliers’ production costs and for intermediate disruption probabilities

Sequential procurement with limited commitment

We analyze the problem of a buyer who chooses a supplier for a long-term relationship via an auction. The buyer lacks commitment to not renegotiate the terms of the contract in the long run. Thus, suppliers are cautious about the information revealed during the auction. We show theoretically and experimentally that first-price auctions perform poorly in terms of efficiency and buyer surplus. Suppliers may pool on a high bid to conceal information. Second-price auctions retain their efficient equilibrium and generate substantial surplus for the buyer. We demonstrate that optimal mechanisms require concealing the winning bid with a strictly positive probability

Sequential procurement with limited commitment

We analyze the problem of a buyer who chooses a supplier for a long-term relationship via an auction. The buyer lacks commitment to not renegotiate the terms of the contract in the long run. Thus, suppliers are cautious about the information revealed during the auction. We show theoretically and experimentally that first-price auctions perform poorly in terms of efficiency and buyer surplus. Suppliers may pool on a high bid to conceal information. Second-price auctions retain their efficient equilibrium and generate substantial surplus for the buyer. We demonstrate that optimal mechanisms require concealing the winning bid with a strictly positive probability

Dezentrale Kitaplatzvergabe ohne Warteschlange : ein Leitfaden

In vielen deutschen Städten ist die Vergabe von freien Plätzen in Kindertagesstätten langwierig und daher mit erheblicher Planungsunsicherheit für Eltern und Verwaltungsaufwand für Kita-Personal verbunden. Gerade der akute Mangel an Betreuungsplätzen führt zu Konkurrenz um Kitaplätze und macht eine effiziente Platzvergabe notwendig. Dieser Policy Brief beschreibt Aspekte, die bei der Gestaltung eines dezentralen Vergabeverfahrens berücksichtigt werden sollten, und stellt erprobte Lösungen vor. Im Zentrum steht dabei die Koordination der Kitas darüber, welche Einrichtung welcher Familie wann einen Betreuungsplatz anbieten soll. In der Praxis führt eine mangelnde Koordination dazu, dass einige Eltern mehrere Angebote gleichzeitig erhalten. Damit werden zum einen Kitaplätze für andere Eltern blockiert und es entsteht eine Warteschlange, die zu beruflicher Planungsunsicherheit für Eltern führt. Zum anderen können sich Eltern mit einer Platzzusage nicht sicher sein, ob sie zu einem späteren Zeitpunkt nicht noch eine bessere Zusage erhalten. Damit nehmen sie auch Betreuungsplätze an, die z.B. aufgrund eines zu langen Anfahrtswegs rechtlich unzumutbar sind. Um diese beiden Probleme zu entschärfen, werden in einigen Städten bereits die Angebote der Kitas an die Eltern koordiniert. In diesen Städten kann zunächst nur jene Kita einem Kind einen Betreuungsplatz anbieten, die auf dem ersten Platz der Rangliste der Eltern steht. Dies führt dazu, dass jedes Kind nur ein Angebot erhalten kann. So werden einerseits zwischen 50% und 70% der Plätze bereits in diesem ersten Schritt vergeben (Herzog und Klein, 2017) und andererseits wissen Eltern, dass sie zu einem späteren Zeitpunkt kein besseres Angebot mehr erhalten werden. Im Policy Brief stellen wir ein weitergehendes Koordinierungsverfahren vor, in dem schon in diesem ersten Schritt für alle freien Plätze ein Platzangebot gemacht werden kann. Das vorgestellte Verfahren hat sich in der Praxis in ähnlichen Kontexten schon vielfach bewährt (Roth, 2017). Ein weiteres Argument für dieses Verfahren ist, dass Eltern keine strategischen Abwägungen bei der Bewerbung anstellen müssen und damit – im Gegensatz zur bisherigen Vergabepraxis – auch schlechter informierte Eltern nicht benachteiligt werden