Optimal capacity provision for service providers with subsequent auctioning of projects

Optimal capacity provision for service providers with subsequent auctioning of projects

0.00 Avg rating0 Votes
Article ID: iaor201529904
Volume: 170
Start Page Number: 652
End Page Number: 662
Publication Date: Dec 2015
Journal: International Journal of Production Economics
Authors: ,
Keywords: combinatorial optimization, economics, game theory
Abstract:

We investigate repeated sourcing events with service providers that have limited capacities. Sealed-bid reverse auctions are used to select the providers. A service provider that wins an auction has to allocate some capacity to the project for a certain duration. If all capacities are utilized, a provider is unable to participate in upcoming auctions until a project is finished. The decision problem for every service provider is to determine the optimal bidding strategy for a given capacity level and to set up the optimal capacity. Our research shows that, in repeated auctions, it is optimal for a provider to submit higher bids than in a single, non-repeated auction. In addition, we investigate how production times and the interarrival time of auctions influence the bidding behavior. Our findings show that the service providers' profits do not always increase with a higher capacity level. By studying a capacity game of two service providers, we show the potential existence of a prisoner's dilemma, which occurs when both providers increase capacity, even though they would have been better off with both having a lower capacity level. Finally, our results show a first-mover advantage when capacity decisions are sequential, rather than simultaneous.

Reviews

Required fields are marked *. Your email address will not be published.