Approximation algorithms for the bid construction problem in combinatorial auctions for the procurement of freight transportation contracts

Trucking companies (carriers) are increasingly facing combinatorial auctions conducted by shippers seeking contracts for their transportation needs. The bid valuation and construction problem for carriers facing these combinatorial auctions is very difficult and involves the computation of a number of NP-hard sub problems. In this paper we examine computationally tractable approximation methods for estimating these values and constructing bids. The benefit of our approximation method is that it provides a way for carriers to discover their true costs and construct optimal or near optimal bids by solving a single NP-hard problem. This represents a significant improvement in computational efficiency. We examine our method both analytically and empirically using a simulation based analysis. (c) 2005 Published by Elsevier Ltd.