Multiple Source Procurement Competitions

Sudhindra Seshadri, Kalyan Chatterjee and Gary L. Lilien
Additional contact information
Sudhindra Seshadri: University of Maryland
Kalyan Chatterjee: Pennsylvania State University
Gary L. Lilien: Pennsylvania State University

Marketing Science, 1991, vol. 10, issue 3, 246-263

Abstract: Relationships between buying and selling organizations in business markets are varied and complex. One important relationship is procurement, or the type of alliance that buyers form with sellers to fulfill their purchasing needs. Multiple sourcing is often proposed to prevent a variety of procurement problems. We develop a bidding model to investigate the effect of multiple sourcing on competitive behavior prior to supplier selection. The model treats the number of bidders (and the decision to bid) endogenously. This distinctive feature allows us to show that the distribution of the number of bids is not independent of the competition type. Most previous models have not considered this question at all. Although multiple sourcing does increase participation in a bidding competition, we show that it can lead to strategic pre-award price increases that can mitigate the effects of the advantages stressed by most previous analyses of post-award supplier management.

Keywords: business marketing; equilibrium; decision analysis; procurement (search for similar items in EconPapers)
Date: 1991
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:10:y:1991:i:3:p:246-263

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