Truthful, efficient auctions for transportation procurement

Abstract

Transportation procurement problem (TPP) is the problem of setting transportation service prices, delivery timing and quantity, and controlling costs and capacity to reduce empty movements and improve market efficiency. The purchase of transportation service is traditionally achieved using a request for proposal and long-term contracts. However, as business relationships become ever more flexible and dynamic, there has been an increasing need to hedge the risks of traditional transportation procurement such as entrance of new carriers and sudden drop in fuel price. This thesis proposes a holistic aution-based solution for the TPP.

Four typical scenarios are investigated. The first scenario incorporates bilateral bidding into auction mechanism design for multi-unit TPP. This scenario considers one-sided Vickrey-Clarke-Groves (O-VCG) combinatorial auctions for a complex transportation marketplace with multiple lanes. This scenario then designs three alternative multi-unit trade reduction (MTR) mechanisms for the bilateral exchange transportation marketplace where all the lanes are partitioned into distinct markets. Proposed mechanisms ensure incentive compatibility, individual rationality, budget balance and asymptotical efficiency.

The second scenario presents a double auction model for the TPP in a dynamic single-lane transportation environment. This scenario first addresses the TPP in a transportation spot market with stochastic but balanced or “symmetric” demand and supply. A periodic sealed double auction (PSDA) is proposed. This scenario then devises a modified PSDA (M-PSDA) to address the TPP with “asymmetric” demand and supply. The auctioneer is likely to gain higher profits from setting a relatively short auction length. However, it is optimal to run the auction (either PSDA or MPSDA) with a relatively large auction length, when maximizing either the social welfare or the utility of shippers and carriers (agents). When the degree of supply-demand imbalance is low, the auctioneer’s myopic optimal expected profit under supply-demand imbalance is larger than that under symmetric demand and supply.

This third scenario presents an auction-based model for the TPP in make-toorder systems. The optimality of dynamic base-stock type (S(x)-like policy) is established. The optimal allocation can be achieved by running an O-VCG auction or a first-price auction with closed-form reserve prices. By mild technical modifications, the results derived in the infinite horizon case can all be extended to the finite horizon case.

The fourth scenario proposes allocatively efficient auction mechanisms for the distributed transportation procurement problem (DTPP), which is generally the problem of matching demands and supplies over a transportation network. This scenario constructs an O-VCG combinatorial auction for the DTPP where carriers are allowed to bid on bundles of lanes. To simplify the execution of auction, this scenario next proposes a primal-dual Vickrey (PDV) auction based on insights from the known Ausubel auctions and the primal-dual algorithm. The PDV auction realizes VCG payments and truthful bidding under the condition of seller-submodularity, which implies that the effect of each individual carrier is decreasing when the coalition increases.