Split-award contracts with investment
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...
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| Veröffentlicht in: | Journal of public economics 2012-02, Vol.96 (1), p.188-197 |
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| container_title | Journal of public economics |
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| creator | Gong, Jiong Li, Jianpei McAfee, R. Preston |
| description | 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.
► Split award contracts popular in practice. ► Theory suggests they are inefficient in common scale economy circumstances. ► We show that when investment favors a single supplier, split awards reduce buyer costs. ► Scale economies reduce competition and split awards create artificial competition. ► When there are scale diseconomies, split awards do not help buyer. |
| doi_str_mv | 10.1016/j.jpubeco.2011.10.001 |
| format | Article |
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► Split award contracts popular in practice. ► Theory suggests they are inefficient in common scale economy circumstances. ► We show that when investment favors a single supplier, split awards reduce buyer costs. ► Scale economies reduce competition and split awards create artificial competition. ► When there are scale diseconomies, split awards do not help buyer.</description><identifier>ISSN: 0047-2727</identifier><identifier>EISSN: 1879-2316</identifier><identifier>DOI: 10.1016/j.jpubeco.2011.10.001</identifier><language>eng</language><publisher>Elsevier B.V</publisher><subject>Auctions ; Contracts ; Economic efficiency ; Financial incentives ; Generalized second-price auctions ; Investment ; Investment analysis ; Procurement ; Production structure ; Split-award</subject><ispartof>Journal of public economics, 2012-02, Vol.96 (1), p.188-197</ispartof><rights>2011 Elsevier B.V.</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c404t-ccea8a428fd3cd0f9060812dbc47f07b49aa6276c8169fe90bbaa7ea8d59f2bd3</citedby><cites>FETCH-LOGICAL-c404t-ccea8a428fd3cd0f9060812dbc47f07b49aa6276c8169fe90bbaa7ea8d59f2bd3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktohtml>$$Uhttps://dx.doi.org/10.1016/j.jpubeco.2011.10.001$$EHTML$$P50$$Gelsevier$$H</linktohtml><link.rule.ids>314,780,784,3550,27924,27925,45995</link.rule.ids></links><search><creatorcontrib>Gong, Jiong</creatorcontrib><creatorcontrib>Li, Jianpei</creatorcontrib><creatorcontrib>McAfee, R. Preston</creatorcontrib><title>Split-award contracts with investment</title><title>Journal of public economics</title><description>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.
► Split award contracts popular in practice. ► Theory suggests they are inefficient in common scale economy circumstances. ► We show that when investment favors a single supplier, split awards reduce buyer costs. ► Scale economies reduce competition and split awards create artificial competition. ► When there are scale diseconomies, split awards do not help buyer.</description><subject>Auctions</subject><subject>Contracts</subject><subject>Economic efficiency</subject><subject>Financial incentives</subject><subject>Generalized second-price auctions</subject><subject>Investment</subject><subject>Investment analysis</subject><subject>Procurement</subject><subject>Production structure</subject><subject>Split-award</subject><issn>0047-2727</issn><issn>1879-2316</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2012</creationdate><recordtype>article</recordtype><recordid>eNqFkE9LxDAUxIMouK5-BGEv4qn1JW2T5iSy-A8WPKjnkL4kmNJta5Jd8dvbsnv39GCYmcdvCLmmkFOg_K7N23HXWBxyBpROWg5AT8iC1kJmrKD8lCwASpExwcQ5uYixhclRyHpBbt7HzqdM_-hgVjj0KWhMcfXj09fK93sb09b26ZKcOd1Fe3W8S_L59Pixfsk2b8-v64dNhiWUKUO0utYlq50p0ICTwKGmzDRYCgeiKaXWnAmONeXSWQlNo7WYMqaSjjWmWJLbQ-8Yhu_d9FxtfUTbdbq3wy4qOSFVnFViclYHJ4YhxmCdGoPf6vCrKKh5FdWq4ypqXmWWZ-YluT_k7ISx9zaoiN72aI0PFpMyg_-n4Q9RoG4b</recordid><startdate>20120201</startdate><enddate>20120201</enddate><creator>Gong, Jiong</creator><creator>Li, Jianpei</creator><creator>McAfee, R. Preston</creator><general>Elsevier B.V</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20120201</creationdate><title>Split-award contracts with investment</title><author>Gong, Jiong ; Li, Jianpei ; McAfee, R. Preston</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c404t-ccea8a428fd3cd0f9060812dbc47f07b49aa6276c8169fe90bbaa7ea8d59f2bd3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2012</creationdate><topic>Auctions</topic><topic>Contracts</topic><topic>Economic efficiency</topic><topic>Financial incentives</topic><topic>Generalized second-price auctions</topic><topic>Investment</topic><topic>Investment analysis</topic><topic>Procurement</topic><topic>Production structure</topic><topic>Split-award</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Gong, Jiong</creatorcontrib><creatorcontrib>Li, Jianpei</creatorcontrib><creatorcontrib>McAfee, R. Preston</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of public economics</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Gong, Jiong</au><au>Li, Jianpei</au><au>McAfee, R. Preston</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Split-award contracts with investment</atitle><jtitle>Journal of public economics</jtitle><date>2012-02-01</date><risdate>2012</risdate><volume>96</volume><issue>1</issue><spage>188</spage><epage>197</epage><pages>188-197</pages><issn>0047-2727</issn><eissn>1879-2316</eissn><abstract>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.
► Split award contracts popular in practice. ► Theory suggests they are inefficient in common scale economy circumstances. ► We show that when investment favors a single supplier, split awards reduce buyer costs. ► Scale economies reduce competition and split awards create artificial competition. ► When there are scale diseconomies, split awards do not help buyer.</abstract><pub>Elsevier B.V</pub><doi>10.1016/j.jpubeco.2011.10.001</doi><tpages>10</tpages></addata></record> |
| fulltext | fulltext |
| identifier | ISSN: 0047-2727 |
| ispartof | Journal of public economics, 2012-02, Vol.96 (1), p.188-197 |
| issn | 0047-2727 1879-2316 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_918756257 |
| source | ScienceDirect Journals (5 years ago - present) |
| subjects | Auctions Contracts Economic efficiency Financial incentives Generalized second-price auctions Investment Investment analysis Procurement Production structure Split-award |
| title | Split-award contracts with investment |
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