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Reputation, Competition, and Entry in Procurement

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  • Giancarlo Spagnolo

    (SITE, Tor Vergata, EIEF and CEPR)

Abstract

Based on my recent work with several co-authors this paper explores the relationship between discretion, reputation, competition and entry in procurement markets. I focus especially on public procurement, which is highly regulated for accountability and trade reasons. In Europe regulation constrains the use of past performance information to select contractors while in the US its use is encouraged. I present some novel evidence on the benefits of allowing buyers to use reputational indicators based on past performance and discuss the complementary roles of discretion and restricted competition in reinforcing relational/reputational forces, both in theory and in a new empirical study on the effects restricted rather than open auctions. I conclude reporting preliminary results form a laboratory experiment showing that reputational mechanisms can be designed to stimulate rather than hindering new entry.

Suggested Citation

  • Giancarlo Spagnolo, 2012. "Reputation, Competition, and Entry in Procurement," EIEF Working Papers Series 1201, Einaudi Institute for Economics and Finance (EIEF), revised Jan 2012.
  • Handle: RePEc:eie:wpaper:1201
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    References listed on IDEAS

    as
    1. Jeffrey V. Butler & Enrica Carbone & Pierluigi Conzo & Giancarlo Spagnolo, 2012. "Reputation and Entry," EIEF Working Papers Series 1215, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2012.
    2. Calzolari, Giacomo & Spagnolo, Giancarlo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers 7434, C.E.P.R. Discussion Papers.
    3. Elisabetta Iossa & Patrick Rey, 2014. "Building Reputation For Contract Renewal: Implications For Performance Dynamics And Contract Duration," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 549-574, June.
    4. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    5. Oriana Bandiera & Andrea Prat & Tommaso Valletti, 2009. "Active and Passive Waste in Government Spending: Evidence from a Policy Experiment," American Economic Review, American Economic Association, vol. 99(4), pages 1278-1308, September.
    6. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 989-1017.
    7. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. repec:eee:transa:v:111:y:2018:i:c:p:174-186 is not listed on IDEAS
    2. Heinrich, Timo & Brosig-Koch, Jeannette, 2015. "Promises and Social Distance in Buyer-Determined Procurement Auctions," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112892, Verein für Socialpolitik / German Economic Association.
    3. Decio Coviello & Andrea Guglielmo & Giancarlo Spagnolo, 2015. "The Effect of Discretion on Procurement Performance," CEIS Research Paper 361, Tor Vergata University, CEIS, revised 17 Nov 2015.
    4. Laurent Lamy & Philippe Jehiel, 2016. "On the benefits of set-asides," Post-Print hal-01688231, HAL.
    5. Bergman, Mats A. & Johansson, Per & Lundberg, Sofia & Spagnolo, Giancarlo, 2016. "Privatization and quality: Evidence from elderly care in Sweden," Journal of Health Economics, Elsevier, vol. 49(C), pages 109-119.
    6. Luigi Moretti & Paola Valbonesi, 2012. "Subcontracting in Public Procurement: An Empirical Investigation," "Marco Fanno" Working Papers 0154, Dipartimento di Scienze Economiche "Marco Fanno".
    7. Baldi, Simona & Bottasso, Anna & Conti, Maurizio & Piccardo, Chiara, 2016. "To bid or not to bid: That is the question: Public procurement, project complexity and corruption," European Journal of Political Economy, Elsevier, vol. 43(C), pages 89-106.
    8. Esteve-González, Patricia, 2016. "Moral hazard in repeated procurement of services," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 244-269.
    9. Koning, Pierre & van de Meerendonk, Arthur, 2014. "The impact of scoring weights on price and quality outcomes: An application to the procurement of Welfare-to-Work contracts," European Economic Review, Elsevier, vol. 71(C), pages 1-14.
    10. Audinga Baltrunaite & Cristina Giorgiantonio & Sauro Mocetti & Tommaso Orlando, 2018. "Discretion and supplier selection in public procurement," Temi di discussione (Economic working papers) 1178, Bank of Italy, Economic Research and International Relations Area.
    11. Di Corato, Luca & Dosi, Cesare & Moretto, Michele, 2015. "Multidimensional auctions for long-term procurement contracts under the threat of early exit: the case of conservation auctions," Working Paper Series 2015:6, Swedish University of Agricultural Sciences, Department Economics.
    12. Ari Hyytinen & Sofia Lundberg & Otto Toivanen, 2015. " Design of public procurement auctions: Evidence from cleaning contracts," Working Papers Department of Managerial Economics, Strategy and Innovation (MSI) 483670, KU Leuven, Faculty of Economics and Business, Department of Managerial Economics, Strategy and Innovation (MSI).
    13. Cesare Dosi & Michele Moretto, 2017. "Cost Uncertainty and Time Overruns in Public Procurement: a Scoring Auction for a Contract with Delay Penalties," Working Papers 2017.02, Fondazione Eni Enrico Mattei.
    14. Cesi Berardino & Iozzi Alberto & Valentini Edilio, 2012. "Regulating Unverifiable Quality by Fixed-Price Contracts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-39, September.
    15. Author-Name: Luca Di Corato & Cesare Dosi & Michele Moretto, 2014. "Bidding for Conservation Contracts," Working Papers 2014.65, Fondazione Eni Enrico Mattei.
    16. repec:eee:ejores:v:267:y:2018:i:1:p:368-380 is not listed on IDEAS
    17. repec:eee:ecosys:v:41:y:2017:i:1:p:52-67 is not listed on IDEAS
    18. repec:kap:regeco:v:53:y:2018:i:1:d:10.1007_s11149-017-9346-6 is not listed on IDEAS

    More about this item

    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
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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