What happens when procurement meets game theory? At the 4th edition of the Amstel Procurement Café, we set out to answer that question through hands-on experience. During our interactive workshop, procurement professionals stepped into the shoes of suppliers and competed across three auction-based negotiation phases. Here’s what happened.

The Scenario

Amstel Chocolatier, a multinational chocolate manufacturer headquartered in Amsterdam, is seeking a new cacao bean supplier in hopes of securing a better deal than with its current partner, Purple Rain Cacao, a mid-sized, ethical cacao Considering the average market price and the required volume, the size of this deal is around €90 million. All the suppliers are aware of this price.

To achieve this, Amstel Chocolatier designed a three-phase supplier convention rooted in mechanism design-based negotiation theory, inviting five pre-selected suppliers, with different backgrounds, strategies, and motivations, including Purple Rain Cacao.

• Mechanism design-based negotiation is a strategy that treats negotiation like a game, where the rules are carefully structured to guide suppliers toward revealing their most competitive offers.
• Instead of relying on persuasion or haggling, the buyer designs the mechanism so that suppliers are incentivized to offer the best price based on interdependence with other suppliers.
• The goal: to generate the most profitable deal through structured competition.

Phase 1: Request for quotation

This phase simulates a sealed-bid game, where suppliers submit their quotes without knowing the offers of others. The suppliers are further incentivized with the first-mover advantage in the final phase, meaning that the supplier with the best deal is automatically admitted to phase 3 and able to decide whether to accept the price first in the auction. This encourages bold early pricing.

• Here, game theory comes into play through asymmetric information, each supplier is unaware of competitors’ intentions or pricing.
• Asymmetric information creates a tension where suppliers must guess what others might do considering factors like the average market price, their knowledge of industry norms, and assumptions about their competitors’ cost structures or risk tolerance.
• For example, if a supplier believes most rivals have higher production costs, they might bid lower to outcompete them. The main aim of this phase is to strike a balance between being competitive and not overcommitting.

We have already seen diverse strategies in this phase, as some suppliers chose to go below the average market price of €9 per kilogram to increase their chances of winning the deal by signaling a willingness to undercut rivals. But it was Pink Orgins who offered the best price, automatically securing them a seat in the final phase.

Phase 2: Shortlisting via descending-price auction

In this phase, suppliers were invited to participate in a Japanese auction, a format where the price gradually decreases in fixed increments. At each step, suppliers must decide whether to stay in or drop out, with no option to rejoin once they’ve left. The process continues until only 1-2 suppliers remain, who then advance to the final phase.

• This phase reflects varying risk preferences as well as strategic thinking. Some suppliers may have tried to signal confidence or efficiency in hopes of pressuring others to exit.
• In game theory, bluffing emerges as a strategy under conditions of incomplete information, where players make moves without knowing their rivals’ next steps.
• The tension of this phase lies in this very strategic interdependence, where, despite the uncertainty, each calculated move would affect and be affected by other rivals.

For example, we saw bluffing in action when a few suppliers decided to stay in longer, even as the price approached or dropped below the market average. This reflects a calculated risk, either driven by balance between efficiency in cost structure, eagerness to win the deal, and a strategic attempt to pressure competitors into backing out.

At the end of the round, only 3 suppliers are shortlisted for the final phase. Purple Rain Cacao, the incumbent suppliers, are unfortunately among the teams that have dropped out, but this wasn’t a mistake or a sign of weakness. It was a deliberate strategic move. Sometimes, walking away is the smartest play: it protects your profit margins, and preserves brand value.

Phase 3: Awarding via ascending-price auction

The final round took the form of a reverse Dutch auction with ascending pricing, a setup that flips the usual procurement logic. Instead of bidding down the price to win, the remaining suppliers waited as the buyer gradually increased the offer, step by step. The first supplier to accept the rising price would secure the contract. In this round, Yellow Sun Cacao, the supplier with the best RFQ, begins this round with the first mover’s advantage.

• This resembles the war of attrition in game theory. Even though the longer a supplier waits means increases in potential rewards, it also means that the risk is increasing over time.
• This is because there is a higher chance that another supplier might accept the price before you do as the price climbed. But at the same time, you might miss out on a higher price if you accept the deal too soon.

The key to winning this phase is knowing when to stop to get the best possible price without losing the deal entirely. Again, the pathway to achieve that is to try making the best possible guess about your competitor’s walkaway point based on assumptions about their cost structure, pricing strategy, and appetite for risk.

Conclusion

The game was definitely a highlight of last week’s session. While the incumbent Purple Rain Cacao gave it their all, it was Green Horizon Cacao who ultimately took home the business, not without a serious fight from Yellow Sun Cacao in the second round and Pink Origins in the finals (the winners of Round 1!). Blue Beans Co. played it smart, knowing their walkaway point and protecting their margins.

As for Amstel Chocolatier, they have saved €18 million through the design of the mechanism that brings out each supplier’s boldness in Phase 1, composure in Phase 2, and precise timing in Phase 3. The company was able to move beyond surface-level pricing and uncover each supplier’s true willingness and capacity to compete. This approach exemplifies how large buyers can leverage mechanism design to create value by turning procurement into a strategic game where every move reveals hidden information.

What’s next?

• While the workshop may be pen-and-paper, in real-life procurement, we rely on powerful tools like Ivalua to make smart, data-driven decisions. Ivalua‘s digitalization enables procurement teams to structure negotiations strategically, analyze supplier behavior, and drive savings with precision.

• Amstel Procurement Café is a recurring event that we host in collaboration with Ivalua, bringing together procurement professionals to explore innovative negotiation strategies through procurement-themed topics.