Competing for contracts with buyer uncertainty: Choosing price and quality variables

Edward Anderson and Cheng Qian

No 2013-06, Working Papers from University of Sydney Business School, Discipline of Business Analytics

Abstract: We model a situation in which a single firm evaluates competing suppliers and selects just one. Suppliers submit bids involving both price and quality variables. The buyer makes a choice which from the supplier's perspective appears to contain a stochastic element - for example the buyer may have information, which is not shared with the suppliers, and that gives one supplier an advantage in the final choice. We use a discrete choice model of buyer choice (e.g. multinomial logit). Our main result is that the supplier's choice of the quality variables is not affected by the competitive environment. Thus the suppliers compete only on price. We compare this with a second model in which the buyer's weighting on different quality variables is uncertain at the time bids are made.

Keywords: Supplier choice; Quality variables; Nash equilibrium; Types of uncerta inty (search for similar items in EconPapers)
Date: 2013-05-09
New Economics Papers: this item is included in nep-com, nep-cta and nep-dcm
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