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Split-award contracts with investment

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Author Info

  • Gong, Jiong
  • Li, Jianpei
  • McAfee, R. Preston

Abstract

This paper studies procurement contracts where a buyer can either divide full production among multiple suppliers or award the entire production to a single supplier. We examine the effect of using multiple suppliers on investment incentives. In a framework of generalized second-price auctions with pre-auction investment, we show that the optimality of split-award depends on the socially efficient number of firms at the investment stage. When that number is greater than one, sole-sourcing is buyer-optimal. When that number is one, split-award lowers the buyer procurement cost.

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File URL: http://www.sciencedirect.com/science/article/pii/S0047272711001575
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 96 (2012)
Issue (Month): 1 ()
Pages: 188-197

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:188-197

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Split-award; Generalized second-price auctions; Investment;

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Cited by:
  1. Alcalde, José & Matthias, Dahm, 2011. "Competition for Procurement Shares," QM&ET Working Papers 11-3, Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica.

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