Dual sourcing with price discovery

Jose Alcalde and Matthias Dahm

Games and Economic Behavior, 2019, vol. 115, issue C, 225-246

Abstract: We consider a (standard) reverse auction for dual sourcing and propose to determine both the providers' shares and the reserve price endogenously, depending on the suppliers' bids. Our benchmark considers a two-stage game of complete information. After a first round of bidding, the two most competitive suppliers advance to the second stage and compete again with a refined reserve price, which is based on the lowest price of the excluded providers. We show that at the first stage providers reveal their costs truthfully. At the second stage suppliers balance a trade-off between increasing their share and raising their mark up. Surprisingly, when discarded suppliers are competitive enough, the procedure not only allows taking advantage of dual sourcing but also generates lower procurement expenditures than a standard auction for sole sourcing. We also consider extensions of the benchmark model, including to situations in which providers have private information about their costs.

Keywords: Dual sourcing; Procurement auctions; Contests; Price discovery (search for similar items in EconPapers)
JEL-codes: D44 D47 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825619300429
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Dual Sourcing with Price Discovery (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:115:y:2019:i:c:p:225-246

DOI: 10.1016/j.geb.2019.03.007

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().