Capacity-constrained suppliers drive up costs in procurement auctions, study finds.
The article explores different auction types when suppliers have limited capacity. The pay-as-bid format leads to inefficient business allocation, with bids decreasing as supplier capacity increases. In contrast, a descending price-clock open auction is optimal, reducing the buyer's expected cost when capacity is evenly spread. The pay-as-bid auction results in higher buyer costs compared to the open auction.