Reputation and Entry in Procurement

43 Pages Posted: 17 Sep 2013

See all articles by Jeffrey V. Butler

Jeffrey V. Butler

Dept. of Economics, University of California, Merced

Enrica Carbone

Second University of Naples

Pierluigi Conzo

University of Turin - Department of Economics and Statistics; Collegio Carlo Alberto

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: September 2013

Abstract

There is widespread concern that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. In this paper we report results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We implement a repeated procurement game with reputational incentives for quality and the possibility of entry. We allow also the entrant to start off with a positive reputational score. Our results suggest that while some past-performance based reputational mechanisms do reduce the frequency of entry, appropriately designed mechanisms can significantly increase it. Moreover, the reputational mechanism we investigate typically increases quality but not prices, suggesting that well designed mechanisms may generate very large gains for buyers and taxpayers.

Keywords: bid preferences, entry, feedback mechanisms, outsourcing, past performance, procurement, quality assurance, reputation, vendor rating

JEL Classification: H57, L14, L15

Suggested Citation

Butler, Jeffrey Vincent and Carbone, Enrica and Conzo, Pierluigi and Spagnolo, Giancarlo, Reputation and Entry in Procurement (September 2013). CEPR Discussion Paper No. DP9651, Available at SSRN: https://ssrn.com/abstract=2326515

Jeffrey Vincent Butler (Contact Author)

Dept. of Economics, University of California, Merced ( email )

5200 N. Lake Road
Merced, CA 95343
United States

HOME PAGE: http://jeffreyvbutler.org

Enrica Carbone

Second University of Naples ( email )

Pierluigi Conzo

University of Turin - Department of Economics and Statistics ( email )

Campus Luigi Einaudi
Lungo Dora Siena 100 A
Torino, Torino 10153
Italy
011/6703892 (Phone)
011/6703895 (Fax)

HOME PAGE: http://www.pieroconzo.altervista.org/wordpress/

Collegio Carlo Alberto ( email )

Piazza Arbarello, 8
Torino, 10122
Italy

HOME PAGE: http://www.carloalberto.org/people/faculty/affiliates/pierluigi-conzo/

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

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