Auction Mechanism Design for Order Allocation and Payment in a Crowdshipping System

Crowdshipping has emerged as a novel service paradigm that leverages excess capacity in the transportation system by enlisting the traveling public, namely the “crowd”, to deliver parcels during their daily trips. To incentivize heterogeneous travelers as crowd carriers, this study proposes effective auction mechanisms for a crowdshipping system that integrates both crowdshipping and dedicated delivery services. An intermediary platform charges a service fare from customers and solicits bids from potential crowd carriers. Based on the auction outcome, the platform either allocates orders and makes payments to the winning bidders or outsources the orders to dedicated delivery services. We develop a single-sided sealed-bid combinatorial auction to allocate orders and determine compensation for crowd carriers. This auction procedure allows carriers to submit mutually exclusive bids for order bundles that align with their original travel routes. We apply the Vickrey-Clarke-Groves mechanism to achieve allocative efficiency and strategy-proofness. To enhance scalability, we also devise an approximation mechanism that combines greedy allocation with a second-best pricing policy. The greedy mechanism provides an upper bound on total system cost and satisfies approximate strategy-proofness with bounded ex post regret. A positive ex post regret can only arise when a crowd carrier overbids on certain bundles, and its magnitude is bounded by the true cost savings of the assigned bundle under misreporting. Under the same mild conditions, both mechanisms yield nonnegative platform profit. Our analysis shows that the platform can effectively tune the performance of both auction mechanisms by regulating the maximum number of bids per crowd carrier and the maximum number of orders per bundle. To achieve more effective cost reduction, the platform is advised to conduct auctions when the number of orders substantially exceeds the number of crowd carriers. The two auction mechanisms developed in this paper can be applied to a more general setting where suppliers submit bids on bundles of items and there exists a fixed-price backup option for each item. Funding: This work was supported by the National Natural Science Foundation of China [Grant 72371216], the Research Grants Council, University Grants Committee [Grants 17205124 and T32-707-22], and the Natural Science Foundation of Guangdong Province [Grant 2025A1515011686]. Supplemental Material: The online appendices are available at https://doi.org/10.1287/trsc.2025.0089 .