What Allotment and Subcontracting in Procurement Bidding
AbstractAllotment and subcontracting are the two alternative mechanisms enabling the participation of SMEs in procurement. We compare these two alternatives in the context of a procurement contract awarded by a first-price sealed-bid auction. When the winning large firm is constrained with respect to the degree of subcontracting, we show that only a reduction of the chosen SME's profit can reduce the expected cost of the contract. However, when the large firm is allowed to choose the subcontracting level, subcontracting can be a Pareto dominating mechanism, i.e. simultaneously increasing both firms' profits and reducing the expected total cost of the contract.
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Bibliographic InfoPaper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 04.06.
Length: 24 pages
Date of creation: May 2004
Date of revision:
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
More information through EDIRC
allotment; subcontracting; procurement; bidding;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-18 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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