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Strategic Sourcing in Procurement

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In this paper, we study how a big buyer owing many smallish units may coordinate procurement demands in order to obtain a low price. We show that when the capacity of the big buyer is relatively large, the optimal policy consists on procuring (part of) its requirements through lots. The optimal number and sizes of these lots would depend on the number of potential suppliers as well as the total requirements of this buyer; and in general, a single lot is not optimal. Moreover, we also show that it may be optimal to demand some requirements through smallish units.

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File URL: http://www.uib.es/depart/deaweb/deawp/pdf/w82.pdf
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Paper provided by Universitat de les Illes Balears, Departament d'Economía Aplicada in its series DEA Working Papers with number 82.

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Date of creation: 2016
Handle: RePEc:ubi:deawps:82
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Web page: http://www.uib.es/depart/deaweb/

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  1. David Spector, 2011. "Exclusive contracts and demand foreclosure," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 619-638, December.
  2. Dalen, Dag Morten & Moen, Espen R. & Riis, Christian, 2006. "Contract renewal and incentives in public procurement," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 269-285, March.
  3. Gong, Jiong & Li, Jianpei & McAfee, R. Preston, 2012. "Split-award contracts with investment," Journal of Public Economics, Elsevier, vol. 96(1), pages 188-197.
  4. Doh-Shin Jeon & Domenico Menicucci, 2012. "Bundling and Competition for Slots," American Economic Review, American Economic Association, vol. 102(5), pages 1957-1985, August.
  5. Marvel, Howard P. & Yang, Huanxing, 2008. "Group purchasing, nonlinear tariffs, and oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1090-1105, September.
  6. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
  7. Roger D. Blair & Christine Piette Durrance, 2014. "Group Purchasing Organizations, Monopsony, and Antitrust Policy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(7), pages 433-443, October.
  8. 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.
  9. Gans, Joshua S. & King, Stephen P., 2002. "Exclusionary contracts and competition for large buyers," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1363-1381, November.
  10. David de Meza & Mariano Selvaggi, 2004. "Exclusive Contracts Foster Relationship-Specific Investment," The Centre for Market and Public Organisation 04/105, Department of Economics, University of Bristol, UK.
  11. Roman Inderst, 2008. "Single sourcing versus multiple sourcing," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 199-213.
  12. Yongmin Chen & Michael H. Riordan, 2007. "Vertical integration, exclusive dealing, and expost cartelization," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 1-21, 03.
  13. Liang Guo & Ganesh Iyer, 2013. "Multilateral Bargaining and Downstream Competition," Marketing Science, INFORMS, vol. 32(3), pages 411-430, May.
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