Seminar

Budget-Constrained Procurement

Leslie Marx (Duke University)

June 11, 2018, 14:00–15:30

Room MS 001

Industrial Organization seminar

Abstract

Procurement auctions have been successfully applied in a variety of settings. We study optimal procurement mechanisms for a buyer with a fixed budget that wishes to purchase units of a homogeneous good, up to a maximum demand amount, from symmetric suppliers with privately known constant marginal costs. We show that the nature of the optimal mechanism depends crucially on the normalized budget (the ratio between the buyer’s budget and its demand) relative to the support of suppliers’ costs. In particular, there is an intermediate range of the normalized budget for which there is a gap between formulations with interim incentive constraints and those with ex post constraints. We characterize the optimal mechanism subject to interim incentive compatibility and individually rationality and, for the case of two suppliers, we characterize the optimal ex post mechanism and provide a dynamic implementation.