Managing Supplier Switching
AbstractTo examine the potential gains from a second production source, we examine how source switching is optimally structured. The model focuses on a purchaser who manages the acquisition process, an incumbent supplier, and a potential entrant or second supplier. Because the costs of the incumbent and second source are correlated, the entrant's costs provide an informative signal about the incumbent's costs. Judicious use of this information allows the purchaser to limit the incumbent's rents. Because entry also provides an alternative source of production, however, there are important distinctions between the optimal entry policy and the optimal auditing policy. One of our findings is that it may be optimal to replace the incumbent, even when the entrant is known to have higher production costs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 18 (1987)
Issue (Month): 1 (Spring)
Contact details of provider:
Web page: http://www.rje.org
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 485-508, June.
- James J. Anton & Dennis A. Yao, 1990. "Measuring the effectiveness of competition in defense procurement: A survey of the empirical literature," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 9(1), pages 60-79.
- Klenio Barbosa & Pierre C. Boyer, 2012. "Discrimination in Dynamic Procurement Design with Learning-by-doing," CESifo Working Paper Series, CESifo Group Munich 3947, CESifo Group Munich.
- McGuire, Thomas G. & Riordan, Michael H., 1995.
"Incomplete information and optimal market structure public purchases from private providers,"
Journal of Public Economics, Elsevier,
Elsevier, vol. 56(1), pages 125-141, January.
- Thomas G. McGuire & Michael H. Riordan, 1991. "Incomplete Information and Optimal Market Structure: Public Purchases from Private Providers," Papers, Boston University - Industry Studies Programme 0010, Boston University - Industry Studies Programme.
- Mark Armstrong & David E.M. Sappington, 2006.
"Regulation, Competition and Liberalization,"
Journal of Economic Literature, American Economic Association,
American Economic Association, vol. 44(2), pages 325-366, June.
- Edward S. Prescott & Robert M. Townsend, 2003. "Mechanism design and assignment models," Working Paper, Federal Reserve Bank of Richmond 03-09, Federal Reserve Bank of Richmond.
- Tracy R. Lewis & Huseyin Yildirim, 2002. "Managing Dynamic Competition," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 779-797, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.