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Split-award contracts with investment

Jiong Gong (), Jianpei Li and Randolph McAfee

Journal of Public Economics, 2012, vol. 96, issue 1, 188-197

Abstract: This paper studies procurement contracts where a buyer can either divide full production among multiple suppliers or award the entire production to a single supplier. We examine the effect of using multiple suppliers on investment incentives. In a framework of generalized second-price auctions with pre-auction investment, we show that the optimality of split-award depends on the socially efficient number of firms at the investment stage. When that number is greater than one, sole-sourcing is buyer-optimal. When that number is one, split-award lowers the buyer procurement cost.

Keywords: Split-award; Generalized second-price auctions; Investment (search for similar items in EconPapers)
JEL-codes: C72 D44 L14 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.jpubeco.2011.10.001

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