Split-award procurement auctions with uncertain scale economies: Theory and data
In a number of observed procurements, the buyer has employed an auction format that allows for a split-award outcome. We focus on settings where the range of uncertainty regarding scale economies is large and, depending on cost realizations, the efficient allocations include split-award outcomes as well as sole-source outcomes (one active supplier). We examine the price performance and efficiency properties of split-award auctions under asymmetric information. In equilibrium, both award outcomes can occur: the split-award outcome arises only when it minimizes total costs; sole-source outcomes, however, occur too often from an efficiency viewpoint. Equilibrium bids involve pooling at a common price for the split award, and separation for sole-source awards. We provide conditions under which the buyer and suppliers all benefit from a split-award format relative to a winner-take-all unit auction format. Model predictions are assessed with data on submitted 'step-ladder' bid prices for a U.S. defense split-award procurement.
If 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.
References listed on IDEAS
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.:
- Robert C. Marshall & Michael J. Meurer & Jean-Francois Richard, 1994. "Litigation Settlement and Collusion," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 211-239.
- John McMillan, 2003.
"Market Design: The Policy Uses of Theory,"
American Economic Review,
American Economic Association, vol. 93(2), pages 139-144, May.
- McMillan, John, 2003. "Market Design: The Policy Uses of Theory," Research Papers 1781, Stanford University, Graduate School of Business.
- Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 675-689.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, July.
- Roman Inderst, 2008. "Single sourcing versus multiple sourcing," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 199-213.
- Tunay I. Tunca & Qiong Wu, 2009. "Multiple Sourcing and Procurement Process Selection with Bidding Events," Management Science, INFORMS, vol. 55(5), pages 763-780, May.
- Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 507-533, Fall.
- Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," IDEI Working Papers 20, Institut d'Économie Industrielle (IDEI), Toulouse.
- B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
- William P. Rogerson, 1994. "Economic Incentives and the Defense Procurement Process," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 65-90, Fall.
- Dorothy E. Klotz & Kalyan Chatterjee, 1995. "Dual Sourcing in Repeated Procurement Competitions," Management Science, INFORMS, vol. 41(8), pages 1317-1327, August.
- Gérard P. Cachon & Fuqiang Zhang, 2007. "Obtaining Fast Service in a Queueing System via Performance-Based Allocation of Demand," Management Science, INFORMS, vol. 53(3), pages 408-420, March.
- James J. Anton & Dennis A. Yao, 1992. "Coordination in Split Award Auctions," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 681-707.
- James J. Anton & Dennis A. Yao, 1989. "Split Awards, Procurement, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 538-552, Winter.
- Thomas P. Lyon, 2006. "DOES DUAL SOURCING LOWER PROCUREMENT COSTS? -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 223-252, 06.
- Wedad J. Elmaghraby, 2000. "Supply Contract Competition and Sourcing Policies," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 350-371, April.
- Dana, James Jr. & Spier, Kathryn E., 1994. "Designing a private industry : Government auctions with endogenous market structure," Journal of Public Economics, Elsevier, vol. 53(1), pages 127-147, January.
- Riordan, Michael H, 1996. "Contracting with Qualified Suppliers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 115-128, February.
- McGuire, Thomas G. & Riordan, Michael H., 1995. "Incomplete information and optimal market structure public purchases from private providers," Journal of Public Economics, 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 0010, Boston University - Industry Studies Programme.
- Shane M. Greenstein, 1993. "Did Installed Base Given an Incumbent Any (Measurable) Advantages in Federal Computer Procurement?," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 19-39, Spring. Full references (including those not matched with items on IDEAS)