Two-stage mechanism design for heterogeneous e-procurement

We discuss a two-stage mechanism for e-procurement operations, which implements a multi-attribute combinatorial auction in first stage, followed by bargaining in the second stage. We find that an important difference between single-unit and heterogeneous e-procurement auctions is the existence of different types among the winning suppliers. In the auction stage, we discuss incentive-compatible bidding strategies for the procurement suppliers, and how the buyer should go about solving the winner determination problem. In the bargaining stage, the buyer can implement a strategy that views the winning suppliers as though they are in two different groups. We derive the decision conditions for the buyer's different procurement strategies. The most important finding is that, compared with classical Vickery-Clarke-Groves mechanism, the proposed mechanism improves social welfare.