Combinatorial Auctions for Procurement: An Empirical Study of the Chilean School Meals Auction

Management Science, Forthcoming

Columbia Business School Research Paper

41 Pages Posted: 10 Nov 2011

See all articles by Marcelo Olivares

Marcelo Olivares

University of Chile; University of Chile - Engineering Department

Gabriel Y. Weintraub

Stanford Graduate School of Business, Stanford University

Rafael Epstein

University of Chile - Engineering Department

Daniel Yung

University of Chile - Engineering Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2011

Abstract

In this paper we conduct an empirical investigation of a large-scale combinatorial auction (CA); the Chilean auction for school meals in which the government procures half a billion dollars worth of meal services every year. Our empirical study is motivated by two fundamental aspects in the design of CAs: (1) which packages should bidders be allowed to bid on; and (2) diversifying the supplier base to promote competition. We use bidding data to uncover important aspects of the firms’ cost structure and their strategic behavior, both of which are not directly observed by the auctioneer; these estimates inform the auction design. Our results indicate that package bidding that allows firms to express their cost synergies due to economies of scale and density seems appropriate. However, we also found evidence that firms can take advantage of this flexibility by discounting package bids for strategic reasons and not driven by cost synergies. Because this behavior can lead to inefficiencies, it may be worth evaluating whether to prohibit certain specific combinations in the bidding process. Our results also suggest that market share restrictions and running sequential auctions seem to promote competition in the long-run, without significantly increasing the short-run cost for the government due to unrealized cost synergies. Our results highlight that the simultaneous consideration of the firms’ operational cost structure and their strategic behavior is key to the successful design of a CA. More broadly, our paper is the first to provide an econometric study of a large-scale CA, providing novel and substantive insights regarding bidding behavior in this type of auctions.

Keywords: combinatorial auctions, procurement, auction design, supply chain management, empirical, public sector applications

Suggested Citation

Olivares, Marcelo and Weintraub, Gabriel Y. and Epstein, Rafael and Yung, Daniel, Combinatorial Auctions for Procurement: An Empirical Study of the Chilean School Meals Auction (October 1, 2011). Management Science, Forthcoming, Columbia Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=1957368

Marcelo Olivares

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

University of Chile - Engineering Department ( email )

Republica 701 Santiago
Chile

Gabriel Y. Weintraub (Contact Author)

Stanford Graduate School of Business, Stanford University ( email )

Stanford, CA 94305
United States

Rafael Epstein

University of Chile - Engineering Department ( email )

Republica 701 Santiago
Chile

Daniel Yung

University of Chile - Engineering Department ( email )

Republica 701 Santiago
Chile

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
44
Abstract Views
677
PlumX Metrics