Multiple-Winner Award Rules in Online Procurement Auctions

This paper investigates a novel winner-determination mechanism: multiple-winner award rules that are widely used in e-procurement auctions and crowdsourcing sites. We focus on one unique award mechanism in e-procurement auctions, in which the auctioneer (i.e., the buyer) specifies three rules before the auction starts: (1) the size of the finalist set (from which the winner[s] will be chosen), (2) the number of winners, and (3) the proportion of contract volume allocated to each winner. We examine how these three rules affect auction performance using a data set of online procurement auctions across a variety of product categories. We find that all three award rules significantly impact the suppliers' participation decision, which is an important factor determining the economic performance of the auction (i.e., buyer's savings). Most interestingly, these three rules systematically induce opposite effects on auction participation for two types of suppliers: experienced bidders and first-time bidders. For example, enlarging the size of the finalist set or increasing the number of winners encourages experienced but discourages inexperienced suppliers to participate the auction, while raising the disparity in contract allocation among winning bidders (e.g., a 50/50 vs. 90/10 split) deters experienced but motivates inexperienced suppliers to participate. These findings provide useful guidelines for industrial buyers and crowdsourcing hosts on how to effectively make use of the three design levers to affect suppliers' participation when designing procurement auctions and crowdsourcing contests