Auctions for procuring options

James Schummer*, Rakesh V. Vohra

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

21 Scopus citations

Abstract

We examine the mechanism-design problem for a single buyer to procure purchase options for a homogeneous good when that buyer is required to satisfy an unknown future demand. Suppliers have two-dimensional types in the form of commitment costs and production costs. The efficient schedule of options depends on the distribution of demand. To implement an efficient outcome, we introduce a class of mechanisms which are essentially pivotal mechanisms (Vickrey-Clarke-Groves) with respect to the expected costs of the suppliers. We show that the computational task of running such mechanisms is not burdensome. Our discussion uses electricity markets as an example.

Original languageEnglish (US)
Pages (from-to)41-51
Number of pages11
JournalOperations Research
Volume51
Issue number1
DOIs
StatePublished - Jan 1 2003

Keywords

  • Games, bidding/auctions: procuring from capacity-constrained suppliers
  • Programming, linear: formulating procurement as longest-path

ASJC Scopus subject areas

  • Computer Science Applications
  • Management Science and Operations Research

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