0
$\begingroup$

I am following this paper . They have different suppliers and one buyer and They are using auction to select best suppliers Suppliers will submit. suppliers offer a multidimensional bidding on quality Q and price p. The “quality” Q includes not only the quality of the product or service but also all its nonmonetary characteristics. The buyer derives utility from a contract U(Q,p)= V(Q)− p where V(.) is the buyer's valuation function of quality Q The best suppliers will be selected using a scoring rule S(Q,p)= V(Q)− p

I am confused there . Is this scoring rule is any standard in economics to calculate bet suppliers? Or this concept comes from? any one here to help

https://onlinelibrary.wiley.com/doi/epdf/10.1002/mde.3237

$\endgroup$
0
$\begingroup$

From the buyer's point of view, the "best" supplier is the one who offers them the highest utility. Using the utility function for scoring suppliers seems quite natural then. (In this paper the utility function is assumed to be quasilinear in money, which is just for simplicity.)

$\endgroup$
2
  • $\begingroup$ the question here is that scoring function is of any standard why we use this scoring function there? why we didn't use any other method like simply assigning score using Likert scale to product quality? we have quality Q of product and price p and for economics point of view we can say that its a utility function and we can write it as S(Q,p)= V(Q)− p to calculate best suppliers. ?? $\endgroup$ – Alex Apr 19 at 16:08
  • $\begingroup$ I'm not sure I understand your problem. The buyer has preferences over $(Q,p)$ bundles. These induce preferences over offers, and therefore over suppliers. The utility function $U(Q,p)$ of the buyer represents these preferences. For comparing suppliers, the buyer needs a scoring function that gives preferred suppliers a higher score. By definition, the buyer's utility function does the job. $\endgroup$ – VARulle Apr 20 at 6:04

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.