Efficient multi-unit procurement mechanism with supply disruption risk

Citation

Xiang, J., Zhang, J., & Sallan, J. M. (2018). Efficient multi-unit procurement mechanism with supply disruption risk. Journal of Interdisciplinary Mathematics, 21(4), 883-895.
doi: 10.1080/09720502.2018.1478250

Abstract

In this paper, we study the multi-attribute multi-unit procurement mechanism design problem facing a set of potential suppliers who suffer from disruption risks. Each supplier's production cost depends on its disruption probability, and both are private information. We propose a Vickery-Clark-Groves auction with disruption risk (VCG-DR) for this problem and show that the mechanism is incentive-compatible, individual-rational and social efficient. Moreover, we compare the performance of the proposed mechanism and the popular single-attribute multi-unit forward auction (SA-MFV) with reserved attribute by numerical experiments. The results show that VCG-DR outperforms SA-MFV in both social efficiency and optimality.