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The authors study a supply chain where an upstream supplier auctions his inventory or capacity as a bundle. The importance of this setting is two-fold: From a practical point of view, there are several examples, both in manufacturing (e.g., Auctioning the capacity of a wafer fabrication facility) and service industries (e.g., Auctioning the sponsorship of a website), where a supplier's capacity is sold as a single piece; from a theoretical side, it highlights the information asymmetry introduced on the downstream supply chain parties when the auction result is disclosed. The authors formulate the problem as a two-stage supply chain comprising a single supplier and two resellers.
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