Procurement without Priors: A Simple Mechanism and its Notable Performance

2025-12-09

AI Summary

This paper studies procurement mechanism design from the buyer’s perspective under complete uncertainty: the supplier’s cost function is entirely unknown, and the buyer holds no prior beliefs. The objective is to maximize the worst-case efficiency of social surplus. We propose a class of simple, constant-revenue-sharing mechanisms wherein the buyer shares a fixed fraction—determined solely by the known demand function—of her utility with the supplier. We establish, for the first time, that this mechanism achieves the optimal worst-case guarantee on the fraction of efficient social surplus for *any* feasible cost function; moreover, this guarantee is strictly positive and tight. In contrast to existing mechanisms that rely on priors or involve complex structures, our approach simultaneously attains robustness, simplicity, and optimality. It thus provides both a theoretical benchmark and a practical paradigm for procurement under information scarcity.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Reasoning under Uncertainty: Stochastic Optimization

Application Category

• Economics, Online Markets and Human Computation: Uses of LLMs and GenAI for marketplace design, bidding, and strategic interactions
• Security and Privacy: Data transparency and provenance
• Search and Retrieval-Augmented AI: Efficiency and scalability of Web search engines

Abstract

How should a buyer design procurement mechanisms when suppliers' costs are unknown, and the buyer does not have a prior belief? We demonstrate that simple mechanisms - that share a constant fraction of the buyer utility with the seller - allow the buyer to realize a guaranteed positive fraction of the efficient social surplus across all possible costs. Moreover, a judicious choice of the share based on the known demand maximizes the surplus ratio guarantee that can be attained across all possible (arbitrarily complex and nonlinear) mechanisms and cost functions. Similar results hold in related nonlinear pricing and optimal regulation problems.

Problem

• Design procurement mechanisms without cost priors
• Guarantee positive fraction of social surplus
• Maximize surplus ratio across all mechanisms

Innovation

• Simple mechanism sharing constant buyer utility fraction
• Share choice based on known demand maximizes surplus
• Applies to nonlinear pricing and regulation problems