A multidimensional procurement auction for trading composite services
Recently, static value chains have gradually been giving way to highly agile service value networks. This involves novel economic and organizational challenges. Added value for customers is created by feasible compositions of distributed service components. This work focuses on the design of a multidimensional procurement auction for trading service compositions and the analysis of strategies for service providers that participate in the procurement process. The mechanism implementation is incentive-compatible, so that it results in an equilibrium in which revealing the true multidimensional type (quality of service and valuation) is a weakly-dominant strategy for all service providers. Due to combinatorial restrictions imposed by the underlying graph topology, the winner determination problem can be solved in polynomial time, in contrast to computationally-intractable combinatorial auctions which cannot be solved this way. Furthermore, we provide a simulation-based analysis based on a reinforcement learning model of bundling and unbundling strategies of service providers that participate in the auction. Based on our results we discuss strategic recommendations for service providers depending on how they are situated within the network. (C) 2010 Elsevier B. V. All rights reserved.
procurement auction markets bundling strategy economic analysis electronic markets mechanism design path auctions