Complexity in Procurement Decision Making
Open Access
- Author:
- Quiroga Gomez, Bernardo Francisco
- Graduate Program:
- Business Administration
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- May 12, 2015
- Committee Members:
- Brent B Moritz, Dissertation Advisor/Co-Advisor
V Daniel R Guide Jr., Dissertation Advisor/Co-Advisor
N Edward Coulson, Committee Member
Terry Paul Harrison, Committee Member - Keywords:
- behavioral economics
newsvendor competition
multi-attribute procurement
nonparametric identification
score auctions - Abstract:
- In the first essay, we investigate the effect of observed inventory decisions on firm performance. In particular, our goal is to measure and understand how much profit a newsvendor-type of decision maker stands to lose due to behavioral (intuitive but suboptimal) ordering. The current literature, primarily focused on a newsvendor making decisions in isolation, reports results which imply profit losses of 1-5% when compared to the analytical solution, due to the flatness of the profit curve in the neighborhood of the optimum. In contrast, we show that in a practical situation, when a behavioral inventory decision-maker competes against a management-science-driven competitor, profit losses are orders of magnitude larger. By considering several plausible and simple competitor policies, we demonstrate average profit losses between 22-76%, regardless of policy sophistication or embedded assumptions. Our results send a clear message to business executives and highlight the importance of considering behavioral biases in procurement. In the second essay, we study the econometric identification of multi-attribute score auctions. Governmental agencies use score procurement auctions to incorporate other attributes beyond price in their purchase decisions. We establish nonparametric identification of bidders’ independent private (pseudo)types for multi-attribute procurement where bids are evaluated using a preannounced quasi-linear-score, calculated on the basis of the submitted levels of the attributes. Hence, it is possible to extend the standard nonparametric method for independent private costs sealed-bid-first-price auctions to multi-attribute score auctions by incorporating the optimal bidding structure. In the third essay, we analyze bidding behavior in two closely related sealed-bid scenarios: One where the rule to assign the contract is transparently communicated to bidders before they submit their offers (the score auction analyzed in the preceding essay), and another where the assignment rule is only known to the buyer and not to the bidders (what we have called a “multi-dimensional beauty-contest auction”). Our results show substantial losses in terms of social welfare and buyer surplus as a direct effect of transparency loss in this procurement system.