Postl, Peter;
(2013)
Efficiency versus optimality in procurement.
Economic Theory
, 53
(2)
pp. 425-472.
10.1007/s00199-012-0699-x.
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Abstract
We study procurement procedures that simultaneously determine the specification and price of a good. Suppliers can offer and produce the good in either of two possible specifications, both of which are equally good for the buyer. Production costs are interdependent and unknown at the time of bidding. Each supplier receives two signals about production cost, one per specification. Our model is a special case of the interdependent value settings with multidimensional types in Jehiel and Moldovanu (Econometrica 69:1237–1259, 2001) where an efficient and incentive compatible mechanism exists. We characterize equilibrium bidding behavior if the winning supplier is selected purely on the basis of price, regardless of the specification offered. While there is a positive chance of obtaining an inefficient specification, this procurement mechanism involves lower information rents than efficient mechanisms, suggesting that there is a trade-off between minimizing expected expenditure for the good, and ensuring that the efficient specification is chosen.
Type: | Article |
---|---|
Title: | Efficiency versus optimality in procurement |
Open access status: | An open access version is available from UCL Discovery |
DOI: | 10.1007/s00199-012-0699-x |
Publisher version: | https://doi.org/10.1007/s00199-012-0699-x |
Language: | English |
Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
UCL classification: | UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics UCL > Provost and Vice Provost Offices > UCL SLASH UCL |
URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10157806 |
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