Procurement when Price and Quality Matter
A buyer seeks to procure a good characterized by its price and its quality from suppliers who have private information about their cost structure ( xed cost and marginal cost of providing quality). We characterize the buyers optimal buying mechanism. We then use the optimal mechanism as a theoretical and numerical benchmark to study simpler buying procedures such as scoring auctions and bargaining. Scoring auctions can extract a signifi cant proportion of the buyers strategic surplus (the difference between the expected utility from the optimal mechanism and the e¢ cient auction). Bargaining does less well and often does worse than the e¢ cient auction.
|Date of creation:||2010|
|Date of revision:|
|Publication status:||Published in: The Rand journal of economics (2010) v.41 n° 1,p.1-34|
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