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Short Communication: DEA based auctions

Papakonstantinou, A. and Bogetoft, P. (2012): Short Communication: DEA based auctions.

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Abstract

In this paper we introduce a simulation framework which we use to numerically evaluate the Hybrid DEA - Second Score Auction. In a procurement setting, the winner of the Hybrid auction by design receives payment at the most equal to the second score auction. It is therefore superior to the traditional second score scheme from the point of view of a principal interested in acquiring an item at the minimum price without losing in quality. For a set of parameters we quantify the size of the improvements. We show in particular that the improvement depends intimately on the regularity imposed on the underlying cost function. In the least structured case of a variable returns to scale technology, the hybrid auction only improved the outcome for a small percentage of cases. However, for those few cases the improvement introduced by the hybrid auction is signicant. For other technologies with constant returns to scale, the gains are considerably higher and payments are lowered in a large percentage of cases. In the simulations, we furthermore calculate the eect of the number of the participating agents, the concavity of the principal value functions, and the number of quality dimensions.

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