Sequential procurement auctions with risk-averse suppliers

Takeshi Nishimura ()

Journal of Economics, 2014, vol. 113, issue 3, 229-252

Abstract: We compare two procurement mechanisms, bundling and unbundling, in a two-stage auction model with risk-averse suppliers. The mechanisms differ in that the two tasks of investment and production are procured through a single auction or two sequential auctions. Suppliers’ production costs are affected by two risk factors, aggregate risk and idiosyncratic risk, as well as by the cost-reducing investment. We show that the bundling mechanism is optimal for a buyer and socially desirable if the aggregate risk is below certain thresholds. The result may not hold true for idiosyncratic risk. Copyright Springer-Verlag Wien 2014

Keywords: Sequential auctions; Bundling; Risk sharing; Procurement; Public-private partnerships; D44; D81; D86; H11; H57; L33 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:113:y:2014:i:3:p:229-252

DOI: 10.1007/s00712-013-0381-1

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