Two-Stage Multi-attribute Auction Mechanism for Price Discovery and Winner Determination

This paper proposes a two-stage multi-attribute auction mechanism for market price discovery and to determine the winning bidder. In the first stage, the buyer announces a multi-attribute value function and a set of budget levels. The bidders submit sealed-bids for quality attributes against each budget level announced. The buyer uses the proposed procedure to estimate the cost function of each vendor and to determine the reservation quality for prequalification. Using these estimated cost functions, the buyer derives the optimal scoring function. In the second stage, the buyer announces the scoring function and conducts an open bid ascending auction using the qualified set of vendors from the first stage to determine the winner. The main purpose of the mechanism is to provide detailed information to the buyer about the procurement environment. This helps the buyer to make informed decisions while designing an appropriate scoring function. We showed that the proposed mechanism induces competitive bids from the vendors and there is no incentive for them to deviate from quality values submitted in the first stage.