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Split-award contracts with investment

Author

Listed:
  • Gong, Jiong
  • Li, Jianpei
  • McAfee, R. Preston

Abstract

This paper studies procurement contracts where a buyer can either divide full production among multiple suppliers or award the entire production to a single supplier. We examine the effect of using multiple suppliers on investment incentives. In a framework of generalized second-price auctions with pre-auction investment, we show that the optimality of split-award depends on the socially efficient number of firms at the investment stage. When that number is greater than one, sole-sourcing is buyer-optimal. When that number is one, split-award lowers the buyer procurement cost.

Suggested Citation

  • Gong, Jiong & Li, Jianpei & McAfee, R. Preston, 2012. "Split-award contracts with investment," Journal of Public Economics, Elsevier, vol. 96(1), pages 188-197.
  • Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:188-197
    DOI: 10.1016/j.jpubeco.2011.10.001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jose Alcalde & Matthias Dahm, 2016. "Proportional payoffs in legislative bargaining with weighted voting: a characterization," Discussion Papers 2016-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
    3. Laurent Lamy & Philippe Jehiel, 2016. "On the benefits of set-asides," Post-Print hal-01688237, HAL.
    4. Alcalde, José & Dahm, Matthias, 2013. "Competition for procurement shares," Games and Economic Behavior, Elsevier, vol. 80(C), pages 193-208.
    5. Richardson, Martin & Stähler, Frank, 2016. "On the “uniform pricing puzzle” in recorded music," Information Economics and Policy, Elsevier, vol. 34(C), pages 58-66.
    6. Bergman, Mats & Granlund, David & Rudholm, Niklas, 2016. "Squeezing the last drop out of your suppliers: an empirical study of market-based purchasing policies for generic pharmaceuticals," HUI Working Papers 116, HUI Research.
    7. Jehiel, Philippe & Lamy, Laurent, 2014. "On discrimination in procurement auctions," CEPR Discussion Papers 9790, C.E.P.R. Discussion Papers.
    8. Lluis Bru & Daniel Cardona, 2016. "Strategic Sourcing in Procurement," DEA Working Papers 82, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    9. repec:bla:obuest:v:79:y:2017:i:6:p:969-996 is not listed on IDEAS
    10. Alcalde, Jose & Dahm, Mathias, 2016. "Dual Sourcing with Price Discovery," QM&ET Working Papers 16-1, University of Alicante, D. Quantitative Methods and Economic Theory.
    11. repec:eee:pubeco:v:159:y:2018:i:c:p:116-127 is not listed on IDEAS

    More about this item

    Keywords

    Split-award; Generalized second-price auctions; Investment;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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