Sequential Procurement of a Long-Term Project
AbstractThis paper deals with the optimal procurement of a long term project whose full return is to be received upon completion. The project consists of several subprojects to be auctioned off in a sequence. In equilibrium, I find that: (1) Even though the procurer lacks long term commitment power, both the procurer and suppliers strictly prefer the project to move forward; (2) unlike the static setting, the procurer's optimal strategy depends on the number of suppliers and more importantly, it is nonmonotonic. As one more supplier participates in the procurement auction, the procurer softens competition in the initial stages by including more cost "types" while increasing competition in the mature stages; (3) this, in turn, implies that existing suppliers might favor participation of additional suppliers; (4) the procurer prefers to deal with long-sighted suppliers only if the project is sufficiently long. Otherwise, short-term projects are better matched with short-sighted suppliers.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 02-35.
Date of creation: 2002
Date of revision:
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Find related papers by JEL classification:
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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