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Reputation and Entry in Procurement

Author

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  • Butler, Jeff
  • Carbone, Enrica
  • Conzo, Pierluigi
  • Spagnolo, Giancarlo

Abstract

There is widespread concern that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. In this paper we report results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We implement a repeated procurement game with reputational incentives for quality and the possibility of entry. We allow also the entrant to start off with a positive reputational score. Our results suggest that while some past-performance based reputational mechanisms do reduce the frequency of entry, appropriately designed mechanisms can significantly increase it. Moreover, the reputational mechanism we investigate typically increases quality but not prices, suggesting that well designed mechanisms may generate very large gains for buyers and taxpayers.

Suggested Citation

  • Butler, Jeff & Carbone, Enrica & Conzo, Pierluigi & Spagnolo, Giancarlo, 2013. "Reputation and Entry in Procurement," CEPR Discussion Papers 9651, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9651
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    References listed on IDEAS

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    Cited by:

    1. Decio Coviello & Luigi Moretti & Giancarlo Spagnolo & Paola Valbonesi, 2018. "Court Efficiency and Procurement Performance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(3), pages 826-858, July.
    2. Spagnolo, Giancarlo, 2012. "Reputation, competition, and entry in procurement," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 291-296.

    More about this item

    Keywords

    bid preferences; entry; feedback mechanisms; outsourcing; past performance; procurement; quality assurance; reputation; vendor rating;

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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