The authors analyze a model in which potential suppliers invest in research and development (R&D) and then compete for a procurement contract from a buyer. If the buyer is able to commit to a procurement mechanism before the investment stage, the full-information solution can be uniquely implemented by first-price and second-price sealed-bid auction mechanisms when the R&D technology exhibits decreasing returns to scale. If the procurement mechanisms and the levels of investment are chosen simultaneously, the full-information solution cannot be implemented. The authors discuss how the second-best equilibrium contract varies with the number of suppliers. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 37 (1996) Issue (Month): 3 (August) Pages: 663-85 Download reference. The following formats are available: HTML
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Johannes Münster, 2006.
"Contests with Investment,"
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120, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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