Time Period Unbundling and the Transformation of Auctions

Consider a firm that satisfies its demand for a specified time period by assigning it to a supplier via a procurement (reverse) auction; call this the standard auction. The firm is considering first breaking the demand down into smaller time periods and permitting bids for one or more of these sub-periods, either as independent bids or as package bids; call this the unbundled auction. Choosing the unbundled auction over the standard auction will tend to: (1) allow each supplier to choose a production plan in which it can satisfy buyer demand at lower cost, (2) increase competition among the suppliers, and (3) allow the buyer to combine bids from different suppliers in order to lower its purchase cost. All ∗Säıd Business School, University of Oxford, Park End Street, Oxford OX1 1HP, UK. †Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, UK.