Coordination in Split Award Auctions

James J. Anton and Dennis A. Yao

The Quarterly Journal of Economics, 1992, vol. 107, issue 2, 681-707

Abstract: We analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier, and suppliers have private cost information. An intriguing feature of split awards is that the equilibrium bids are implicitly coordinated. Because a split award price is the sum of offered split prices, each supplier can unilaterally veto a split award by bidding very high for the split. The need to coordinate is reflected in a split price that does not vary with private information. We also explore conditions under which split award auctions may be preferred to winner-take-all auctions.

Date: 1992
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