Contracting with Capacity Constrained Suppliers

In this paper I characterize the optimal and efficient mechanisms to allocate simultaneously 2 tasks to 2 capacity constrained suppliers. I show that efficiency can always be achieved using some modified second price auctions. The efficient mechanism is optimal in the case of monotone incentives. When countervailing incentives arise, production is distorted from efficiency over a nondegenerate interval of types so as to extract the full surplus over that interval.