Auctions for Procuring Options

We examine the mechanism design problem for a single buyer to procure purchase-options for a homogeneous good when that buyer is required to satisfy an unknown future demand. Suppliers have 2dimensional types in the form of commitment costs and production costs. The efficient schedule of options depends on the distribution of demand. To implement an efficient outcome, we introduce a class of mechanisms which are essentially pivotal mechanisms (Vickrey– Clarke–Groves) with respect to the expected costs of the suppliers. We show that the computational task of running such mechanisms is not burdensome. Our discussion uses electricity markets as an example.