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Past performance and entry in procurement: An experimental investigation

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  • Butler, Jeffrey V.
  • Carbone, Enrica
  • Conzo, Pierluigi
  • Spagnolo, Giancarlo

Abstract

There is widespread concern that incentive mechanisms based on past performance may hinder entry in procurement markets. We report results from a laboratory experiment assessing this concern. Within a simple dynamic procurement game where suppliers compete on price and quality we study how an incentive mechanism based on past performance affects outcomes and entry rates. Results indicate that some past-performance based mechanisms indeed hinder entry, but when appropriately designed may significantly increase both entry and quality provision without increasing costs to the procurer.

Suggested Citation

  • Butler, Jeffrey V. & Carbone, Enrica & Conzo, Pierluigi & Spagnolo, Giancarlo, 2020. "Past performance and entry in procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 179-195.
    • Handle: RePEc:eee:jeborg:v:173:y:2020:i:c:p:179-195
    DOI: 10.1016/j.jebo.2020.02.019
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    Cited by:

    1. Decio Coviello & Luigi Moretti & Giancarlo Spagnolo & Paola Valbonesi, 2018. "Court Efficiency and Procurement Performance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(3), pages 826-858, July.
    2. Tukiainen, Janne & Blesse, Sebastian & Bohne, Albrecht & Giuffrida, Leonardo M. & Jääskeläinen, Jan & Luukinen, Ari & Sieppi, Antti, 2021. "What are the priorities of bureaucrats? Evidence from conjoint experiments with procurement officials," ZEW Discussion Papers 21-033, ZEW - Leibniz Centre for European Economic Research.
    3. Spagnolo, Giancarlo, 2012. "Reputation, competition, and entry in procurement," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 291-296.
    4. Visa Pitkänen, 2022. "Competition and efficiency in repeated procurements: Lessons from the Finnish rehabilitation markets," Health Economics, John Wiley & Sons, Ltd., vol. 31(5), pages 820-835, May.

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    More about this item

    Keywords

    Bid subsidies; Entry; Past performance; Procurement; Quality; Supplier selection; Vendor rating;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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