A preference-based, multi-unit auction for pricing and capacity allocation. (March 2018)

• Record Type: Journal Article
• Authors: Lessan, Javad; Karabatı, Selçuk
• Is Part Of: Computers & operations research. Volume 91(2018)
• Page Start: 237
• Page End: 246
• Publication Date: 2018-03
• Subjects: Multi-unit auctions -- Pricing and capacity allocation -- Mixed-integer programming; Operations research -- Periodicals; Electronic digital computers -- Periodicals; 004.05
• DOI: 10.1016/j.cor.2017.09.024
• Languages: English
• ISSNs: 0305-0548

Abstract

Highlights: We study a pricing and allocation problem of a seller of multiple units of a homogeneous item. We consider a setting where buyers expect "fairness" in the allocation of the units. We present a semi-market mechanism in the form of an iterative ascending-bid auction. We show that the proposed auction is a universally truthful mechanism. We demonstrate that the mechanism is an effective decision making tool for revenue maximization. Abstract: We study a pricing and allocation problem of a seller of multiple units of a homogeneous item, and present a semi-market mechanism in the form of an iterative ascending-bid auction. The auction elicits buyers' preferences over a set of options offered by the seller, and processes them with a random-priority assignment scheme to address buyers' "fairness" expectations. The auction's termination criterion is derived from a mixed-integer programming formulation of the preference-based capacity allocation problem. We show that the random priority- and preference-based assignment policy is a universally truthful mechanism which can also achieve a Pareto-efficient Nash equilibrium. Computational results demonstrate that the auction mechanism can extract a substantial portion of the centralized system's profit, indicating its effectiveness for a seller who needs to operate under the "fairness" constraint.