For procuring from sellers with decreasing returns, there are known efficient dynamic auction formats. In this paper, we design an efficient dynamic procurement auction for the case where goods are homogeneous and bidders have increasing returns. Our motivating example is the procurement of vaccines, which often exhibit large fixed costs and small constant marginal costs. The auctioneer names a price and bidders report the interval of quantities that they are willing to sell at that price. The process repeats with successively lower prices, until the efficient outcome is discovered. We demonstrate an equilibrium that is efficient and generates VCG prices.
Baranov, Oleg, Christina Aperjis, Lawrence M. Ausubel, and Thayer Morrill.
"Efficient Procurement Auctions with Increasing Returns."
American Economic Journal: Microeconomics,
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
International Agreements and Observance; International Organizations
National Government Expenditures and Related Policies: Procurement
Analysis of Health Care Markets
Transactional Relationships; Contracts and Reputation; Networks
Chemicals; Rubber; Drugs; Biotechnology; Plastics