A buyer–seller game model for selection and negotiation of purchasing bids: Extensions and new models

A number of efficiency-based vendor selection and negotiation models have been developed to deal with multiple attributes including price, quality and delivery performance. The efficiency is defined as the ratio of weighted outputs to weighted inputs. By minimizing the efficiency, Talluri proposes a buyer–seller game model that evaluates the efficiency of alternative bids with respect to the ideal target set by the buyer. The current paper shows that this buyer–seller game model is closely related to data envelopment analysis (DEA) and can be simplified. The current paper also shows that setting the (ideal) target actually incorporates implicit tradeoff information on the multiple attributes into efficiency evaluation. We develop a new buyer–seller game model where the efficiency is maximized with respect to multiple targets set by the buyer. The new model allows the buyer to evaluate and select the vendors in the context of best-practice. By both minimizing and maximizing efficiency, the buyer can obtain an efficiency range within which the true efficiency lies given the implicit tradeoff information characterized by the targets. The current study establishes the linkage between buyer–seller game models and DEA, Such a linkage can provide the buyer with correct evaluation methods based upon existing DEA models regarding the nature of bidding.