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Sequential Procurement with Subcontracting

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  • Gale, Ian L
  • Hausch, Donald B
  • Stegeman, Mark
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    Abstract

    Two symmetric sellers are approached sequentially by fragmented buyers. Each buyer conducts a second-price auction and purchases from the seller who offers the lower price. Winning an auction affects bidding for future contracts because the sellers have nonconstant marginal costs. We assume that the sellers are completely informed, and we study the unique equilibrium that survives iterated elimination of weakly dominated strategies. If subcontracting between the sellers is impossible, the final allocation of contracts is generally inefficient. If postauction subcontracting is possible, the sellers can be worse off, ex ante, than when subcontracting is impossible. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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    Bibliographic Info

    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): 41 (2000)
    Issue (Month): 4 (November)
    Pages: 989-1020

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    Handle: RePEc:ier:iecrev:v:41:y:2000:i:4:p:989-1020

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    Cited by:
    1. Reiss, J. Philipp & Schöndube Jens Robert, 2007. "First-Price Equilibrium and Revenue Equivalence in a Sequential Procurement Auction Model," Research Memorandum 003, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Frode Meland & Odd Rune Straume, 2006. "Outsourcing in Contests," CESifo Working Paper Series 1658, CESifo Group Munich.
    3. Marechal, Francois & Morand, Pierre-Henri, 2003. "Pre vs. post-award subcontracting plans in procurement bidding," Economics Letters, Elsevier, vol. 81(1), pages 23-30, October.
    4. Bernard Lebrun, 2008. "First-Price, Second-Price, and English Auctions with Resale," Working Papers 2008_06, York University, Department of Economics.
    5. Jeddy, Mohamed & Larue, Bruno, 2012. "Mergers, concurrent marketing mechanisms and the performance of sequential auctions," Working Papers 126945, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    6. Thomas Tröger & Rodney Garratt & Charles Zheng, 2008. "Collusion via Resale," Bonn Econ Discussion Papers bgse20_2008, University of Bonn, Germany.
    7. Luigi Moretti & Paola Valbonesi, 2012. "Subcontracting in Public Procurement: An Empirical Investigation," "Marco Fanno" Working Papers 0154, Dipartimento di Scienze Economiche "Marco Fanno".
    8. Sui, Yong, 2006. "All-pay auctions with resale," MPRA Paper 11463, University Library of Munich, Germany, revised Oct 2007.
    9. Yildirim, Huseyin, 2004. "Piecewise procurement of a large-scale project," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1349-1375, November.
    10. Caillaud, Bernard & Mezzetti, Claudio, 2004. "Equilibrium reserve prices in sequential ascending auctions," Journal of Economic Theory, Elsevier, vol. 117(1), pages 78-95, July.
    11. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.

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