A mechanism for supporting collective innovation: the open contract-based challenge

Details on the research methodology are discussed in the “Appendix”.

To prevent confusion, from now on we refer to the seeker as “he” and any solver as “she”.

For instance, the solver could be self-sufficient in supplying all these know-how items. Alternatively, she could be the leader of a coalition of enterprises, where she exploits the distinct skills of the coalition by coordinating the role of every enterprise in defining the coalition proposal for a single innovation contract. The goal of the coordination is to exploit scope economies and to share fairly the overall revenue (Raiffa 1982).

A relevant example is the case of the procurement of meals for 1,300,000 students in the Chilean public school system, which was awarded through a single round sealed-bid combinatorial auction. This improved the price-quality ratio of the meals and obtained estimated yearly savings of around US$40 million (Epstein et al. 2002).

In Avenali et al. (2010), the score of a bid of any solver does not take into account the bids of the solver’s opponents.

In Avenali et al. (2010), the proposed mechanism is less flexible as it requires the solver to explicitly indicate the overall price required for every contract of the same bid.

Open innovation platforms could provide a semantic engine to search for solvers on the basis of suitable rules. In the case that OCM is integrated into such a platform, OCM could exploit the semantic engine in order to select and signal to the seeker possible other solvers which are eligible to be invited to the challenge.

As proposed in Avenali and Bassanini (2007), the mechanism could be empowered by allowing solvers to play a certain number of waivers and/or loll bids. However, to simplify the illustration of the open contract mechanism process, we do not consider this possibility.

In essence, OCM prevents solvers from submitting new bids which are dominated by the currently stored bids.

To clarify the potential problem, let us consider the case where there are three contract schemes, each one simply consisting of producing and providing to the seeker a fixed quantity of items a, b, c at a negotiable price. Let us also asume that a solver l ₁ is significantly interested in obtaining both contracts a and b (e.g. due to large economies of scope from producing the two items), a solver l ₂ in both contracts b and c (again due to scope economies), and a solver l ₃ only in contract c. At the first round, let l ₁ require 1000 for contracts a and b, l ₂ require 2000 for contracts b and c, and l ₃ require 2000 for contracts c; the incompatibility between the bids of l ₁ and l ₂ allows the seeker to obtain exactly the required quantity of items a, b, c at a price equal to 3200. However, if free disposal is plausible, it would be more convenient for the seeker to accept twice the required quantity of b at a lower price 3000. Most likely, allowing a high number of rounds and/or a high number of bids which any solver can submit, solver l ₂ would try to win by submitting also separate bids for contracts b and c, such as, for instance, 300 for b and 1900 for c; in such a case, the proposed version of OCM allows the seeker to obtain exactly the required quantity of items a, b, c at a price equal to 2900. Instead, if for some reason l ₂ decides to not submit any separate bids for contracts b and c and free disposal can be assumed, then OCM should be enhanced to automatically accept twice the required quantity of b.