Split-award contracts with investment
Jiong Gong (),
Jianpei Li and
Journal of Public Economics, 2012, vol. 96, issue 1, 188-197
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:96:y:2012:i:1:p:188-197
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