Procurement Strategies and Auction Mechanism for Heterogeneous Service Providers in a Service Supply Chain

Abstract

This paper examines competition between two heterogeneous service providers (SPs) in a service procurement market. We investigate a service supply chain consisting of one service integrator (SI), and two SPs who compete the SI’s order with their own reservation profits. To select the favorable SP and centralize the total system, we propose an auction mechanism in symmetric and asymmetric information scenarios and find that channel coordination can be achieved by means of an efficient auction mechanism, hence, Pareto improvement conditions can be clearly illustrated. In addition, we characterize the effects of information asymmetry on optimal decisions and derive some important managerial insights into the value of information.