Buying from the Fringe (too)

Lluis Bru, Daniel Cardona and József Sákovics

No 310, Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: We analyze how to divide the requirements of a (public) firm into lots, when potential suppliers suffer from heterogeneous diseconomies of scale. The optimal design leads to all firms, included the disadvantaged competitors, the fringe, being active, despite the concomitant cost of increasing supplier profit. Setting large lots that only large firms can produce competitively is necessary; but also setting small lots that the fringe firms can competitively bid for, reduces procurement cost. If, in addition, some medium-sized lots are set aside for the fringe -- as allowed by the US regulations, but not by the EU ones -- procurement cost is further reduced.

Keywords: Procurement; sequential auctions; block sourcing; regulation; affirmative action (search for similar items in EconPapers)
JEL-codes: D47 K23 L13 L51 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2023-07
New Economics Papers: this item is included in nep-com and nep-des
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Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:310

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