Exchanging heterogeneous goods via sealed bid auctions and transportation systems

A primary commodity such as wheat, rice, coffee, oil, etc., is shipped fromm locations where it was grown or pumped ton manufacturers. Each manufacturer processes, packages, advertises, and distributes the commodity under a consumer product brand name. The resulting heterogeneous good is sold at a sealed bid auction, in competition with the other manufacturers of the consumer product, tok final customers. The problem to be considered in this paper is to find a way of determining prices for the goods produced and the physical exchanges between seller and buyer which satisfy flow conditions and which take into account the evaluations of the goods by both sellers and buyers. The first model for doing this is given in section 1, which combines the idea of a sealed bid auction due to Shapley, Shubik and Thompson, with a conventional transportation system. The sealed bid auction is used to determine the exchange prices, and the transportation system is used to calculate the production and transportation costs. It is suggested that the resulting model type can also be applied in a wide range of problems that arise in the marketing of goods sold under brand names (i.e., heterogeneous goods) regardless of whether they are actually exchanged at formal auctions. We show in section 6 that our model is a generalization of the transshipment model in a recent paper by Dubey and Shapley [1]. In their model they considered a number of oligopolists engaged in transshipping and trading goods. Their oligopolists set their prices in order to maximize profits, rather than having them determined by an auction process as is done in our model. In section 7, we extend the model to one in which the wholesalers are permitted to make positive profits. We show how to calculate the values of coalitions of the various players in the model.The work of the first named author was prepared as part of the activities of the Management Sciences Research Group, Carnegie Mellon University, under Contract No. N00014-85-K-0198 NR 047-048 with the Office of Naval Research. Reproduction in whole or in part is permitted for any purpose of the U.S. Government.