Split-Award Procurement Auctions with Uncertain Scale Economies: Theory and Data
James J. Anton
Duke University - Fuqua School of Business; Duke University - Department of Economics
SUNY at Stony Brook University, College of Arts and Science, Department of Economics
Fuqua School - Duke University; Duke University - Department of Economics
August 26, 2009
Games and Economic Behavior, Forthcoming
In a number of observed procurements, the buyer has employed an auction format that allows for a split-award outcome. We focus on settings where the range of uncertainty regarding scale economies is large and, depending on cost realizations, the efficient allocations include split-award outcomes as well as sole-source outcomes (one active supplier). We examine the price performance and efficiency properties of split-award auctions under asymmetric information. In equilibrium, both award outcomes can occur: the split-award outcome arises only when it minimizes total costs; sole-source outcomes, however, occur too often from an efficiency viewpoint. Equilibrium bids involve pooling at a common price for the split award, and separation for sole-source awards. We provide conditions under which the buyer and suppliers all benefit from a split-award format relative to a winner-take-all unit auction format. Model predictions are assessed with data on submitted ‘step-ladder’ bid prices for a US defense split-award procurement.
Number of Pages in PDF File: 32
JEL Classification: C72, D44, D82, L13working papers series
Date posted: April 14, 2010 ; Last revised: April 22, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.797 seconds