Split-Award Procurement Auctions with Uncertain Scale Economies: Theory and Data

32 Pages Posted: 14 Apr 2010 Last revised: 22 Apr 2010

See all articles by James J. Anton

James J. Anton

Duke University - Fuqua School of Business; Duke University - Department of Economics; Duke Innovation & Entrepreneurship Initiative

Sandro Brusco

SUNY at Stony Brook University, College of Arts and Science, Department of Economics

Giuseppe Lopomo

Fuqua School - Duke University; Duke University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2009

Abstract

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.

JEL Classification: C72, D44, D82, L13

Suggested Citation

Anton, James J. and Brusco, Sandro and Lopomo, Giuseppe, Split-Award Procurement Auctions with Uncertain Scale Economies: Theory and Data (August 26, 2009). Games and Economic Behavior, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1589715 or http://dx.doi.org/10.2139/ssrn.1589715

James J. Anton (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0097
United States
919-660-7754 (Phone)
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Duke University - Department of Economics

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Duke Innovation & Entrepreneurship Initiative ( email )

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Sandro Brusco

SUNY at Stony Brook University, College of Arts and Science, Department of Economics ( email )

Stony Brook, NY 11794
United States

Giuseppe Lopomo

Fuqua School - Duke University ( email )

Box 90097
Durham, NC 27708-0097
United States
(919) 660-7820 (Phone)
(919) 660-7971 (Fax)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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