Abstract
This paper discusses multiple unit auctions for industrial procurement where the cost structures of suppliers capture economies and diseconomies of scale caused by the nature of the production cost and the opportunity value of suppliers' capacities. The problem of winner determination and demand allocation is proven to be NP-complete. We propose a binary tree algorithm with bounds (BTB) which efficiently exploits the model's optimality properties. BTB outperforms general integer optimization software in computational time, especially with existence of substantial economies and diseconomies of scale. The algorithm complexity is linear in demand volume. This property allows for efficient handling of high volume auctions and thus leads to increased benefit for the overall system. Under the assumption of the myopic best response strategies, we investigate the behavior of suppliers and price dynamics for iterative (multiple round) bidding with appropriate allocation and stopping rules. The allocation rules, featured by several tie breakers for multiple optimal solutions to the allocation model in each round, are proposed to induce suppliers' dominant strategies and to improve the system's performance.
| Original language | English |
|---|---|
| Pages (from-to) | 816-834 |
| Number of pages | 19 |
| Journal | European Journal of Operational Research |
| Volume | 174 |
| Issue number | 2 |
| DOIs | |
| State | Published - Oct 16 2006 |
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Keywords
- Economies of scale
- Multiple unit auction
- Optimization
ASJC Scopus subject areas
- Information Systems and Management
- Management Science and Operations Research
- Statistics, Probability and Uncertainty
- Applied Mathematics
- Modeling and Simulation
- Transportation
Cite this
Multiple unit auctions with economies and diseconomies of scale. / Jin, Mingzhou; Wu, S. David; Erkoc, Murat.
In: European Journal of Operational Research, Vol. 174, No. 2, 16.10.2006, p. 816-834.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Multiple unit auctions with economies and diseconomies of scale
AU - Jin, Mingzhou
AU - Wu, S. David
AU - Erkoc, Murat
PY - 2006/10/16
Y1 - 2006/10/16
N2 - This paper discusses multiple unit auctions for industrial procurement where the cost structures of suppliers capture economies and diseconomies of scale caused by the nature of the production cost and the opportunity value of suppliers' capacities. The problem of winner determination and demand allocation is proven to be NP-complete. We propose a binary tree algorithm with bounds (BTB) which efficiently exploits the model's optimality properties. BTB outperforms general integer optimization software in computational time, especially with existence of substantial economies and diseconomies of scale. The algorithm complexity is linear in demand volume. This property allows for efficient handling of high volume auctions and thus leads to increased benefit for the overall system. Under the assumption of the myopic best response strategies, we investigate the behavior of suppliers and price dynamics for iterative (multiple round) bidding with appropriate allocation and stopping rules. The allocation rules, featured by several tie breakers for multiple optimal solutions to the allocation model in each round, are proposed to induce suppliers' dominant strategies and to improve the system's performance.
AB - This paper discusses multiple unit auctions for industrial procurement where the cost structures of suppliers capture economies and diseconomies of scale caused by the nature of the production cost and the opportunity value of suppliers' capacities. The problem of winner determination and demand allocation is proven to be NP-complete. We propose a binary tree algorithm with bounds (BTB) which efficiently exploits the model's optimality properties. BTB outperforms general integer optimization software in computational time, especially with existence of substantial economies and diseconomies of scale. The algorithm complexity is linear in demand volume. This property allows for efficient handling of high volume auctions and thus leads to increased benefit for the overall system. Under the assumption of the myopic best response strategies, we investigate the behavior of suppliers and price dynamics for iterative (multiple round) bidding with appropriate allocation and stopping rules. The allocation rules, featured by several tie breakers for multiple optimal solutions to the allocation model in each round, are proposed to induce suppliers' dominant strategies and to improve the system's performance.
KW - Economies of scale
KW - Multiple unit auction
KW - Optimization
UR - http://www.scopus.com/inward/record.url?scp=33746266708&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33746266708&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2005.02.075
DO - 10.1016/j.ejor.2005.02.075
M3 - Article
VL - 174
SP - 816
EP - 834
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 2
ER -