Split-award procurement auctions with uncertain scale economies: Theory and data

James Anton (), Sandro Brusco and Giuseppe (Pino) Lopomo

Games and Economic Behavior, 2010, vol. 69, issue 1, 24-41

Abstract: In a number of observed procurements, the buyer has employed an auction format that allows for a split-award outcome. We focus on settings where the range of uncertainty regarding scale economies is large and, depending on cost realizations, the efficient allocations include split-award outcomes as well as sole-source outcomes (one active supplier). We examine the price performance and efficiency properties of split-award auctions under asymmetric information. In equilibrium, both award outcomes can occur: the split-award outcome arises only when it minimizes total costs; sole-source outcomes, however, occur too often from an efficiency viewpoint. Equilibrium bids involve pooling at a common price for the split award, and separation for sole-source awards. We provide conditions under which the buyer and suppliers all benefit from a split-award format relative to a winner-take-all unit auction format. Model predictions are assessed with data on submitted 'step-ladder' bid prices for a U.S. defense split-award procurement.

Date: 2010
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Citations: View citations in EconPapers (16)

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Working Paper: Split-Award Procurement Auctions with Uncertain Scale Economies: Theory and Data (2010)
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