Efficient Procurement Auctions with Increasing Returns

American Economic Journal: Microeconomics. 2017. Vol. 9. No. 3. P. 1–27.

Baranov O., Ausubel L., Aperjis C., Morrill T.

For procuring from sellers with decreasing returns, there are known efficient dynamic auction formats. In this paper, we design an efficient dynamic procurement auction for the case where goods are homogeneous and bidders have increasing returns. Our motivating example is the procurement of vaccines, which often exhibit large fixed costs and small constant marginal costs. The auctioneer names a price and bidders report the interval of quantities that they are willing to sell at that price. The process repeats with successively lower prices, until the efficient outcome is discovered. We demonstrate an equilibrium that is efficient and generates VCG prices.

Keywords: procurement auctions, Vickrey auction, dynamic auctions