Procurement and predation: Dynamic sourcing from financially constrained suppliers

Malin Arve

Journal of Public Economics, 2014, vol. 120, issue C, 157-168

Abstract: This paper studies the relationship between a financially constrained firm and a stronger opponent who is not cash-constrained when these firms repeatedly compete in a procurement context. We characterize and discuss the procurement agency's optimal strategy when faced with such asymmetric firms. We highlight a trade-off between the long-run benefits from competition and the short-run benefits from reduced costs. Finally, we show that to reduce costs in the short run, the financially weak firm should be favored in future procurement.

Keywords: Asymmetric information; Dual sourcing; Favoritism; Financial constraints; Procurement (search for similar items in EconPapers)
JEL-codes: D82 G30 H57 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:120:y:2014:i:c:p:157-168

DOI: 10.1016/j.jpubeco.2014.09.007

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