Competing for contracts with buyer uncertainty: Choosing price and quality variables
AbstractWe model a situation in which a single firm evaluates competing suppliers and selects just one. Suppliers submit bids involving both price and quality variables. The buyer makes a choice which from the supplier's perspective appears to contain a stochastic element - for example the buyer may have information, which is not shared with the suppliers, and that gives one supplier an advantage in the final choice. We use a discrete choice model of buyer choice (e.g. multinomial logit). Our main result is that the supplier's choice of the quality variables is not affected by the competitive environment. Thus the suppliers compete only on price. We compare this with a second model in which the buyer's weighting on different quality variables is uncertain at the time bids are made.
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Bibliographic InfoPaper provided by University of Sydney Business School, Discipline of Business Analytics in its series Working Papers with number 13 BAWP.
Date of creation: 09 May 2013
Date of revision:
Supplier choice; Quality variables; Nash equilibrium; Types of uncerta inty;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
- NEP-COM-2013-10-25 (Industrial Competition)
- NEP-CTA-2013-10-25 (Contract Theory & Applications)
- NEP-DCM-2013-10-25 (Discrete Choice Models)
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