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Bundled procurement

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  • Chen, Yongmin
  • Li, Jianpei

Abstract

When procuring multiple products from competing sellers, a buyer may choose separate purchase, pure bundling, or mixed bundling. We show that pure bundling maximizes buyer surplus when there are two sellers and trade for each good is likely efficient, whereas separate purchase can be optimal for the buyer when there are more sellers or one good has a low probability of trade. We explain how these results are related to the reduction of sellers' cost dispersion and the potential “adverse tying” under bundling. Remarkably, mixed bundling is dominated under procurement, in contrast to the finding under monopoly bundled sales.

Suggested Citation

  • Chen, Yongmin & Li, Jianpei, 2018. "Bundled procurement," Journal of Public Economics, Elsevier, vol. 159(C), pages 116-127.
  • Handle: RePEc:eee:pubeco:v:159:y:2018:i:c:p:116-127
    DOI: 10.1016/j.jpubeco.2018.02.004
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    1. Xu, Minbo & Yin, Nina & Li, Sanxi, 2019. "Multitask assignments with adverse selection," Economics Letters, Elsevier, vol. 181(C), pages 127-132.

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    More about this item

    Keywords

    Procurement; Bundled procurement; Separate purchase; Bundling; Mixed bundling;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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