Sequential Procurement with Subcontracting

Posted: 11 Jan 2001

See all articles by Ian L. Gale

Ian L. Gale

Georgetown University - Department of Economics

Donald B. Hausch

University of Wisconsin at Madison

Mark Stegeman

Virginia Polytechnic Institute & State University - Department of Economics

Abstract

Two symmetric sellers are approached sequentially by fragmented buyers. Each buyer conducts a second-price auction and purchases from the seller who offers the lower price. Winning an auction affects bidding for future contracts because the sellers have nonconstant marginal costs. We assume that the sellers are completely informed, and we study the unique equilibrium that survives iterated elimination of weakly dominated strategies. If subcontracting between the sellers is impossible, the final allocation of contracts is generally inefficient. If postauction subcontracting is possible, the sellers can be worse off, ex ante, than when subcontracting is impossible.

Suggested Citation

Gale, Ian L. and Hausch, Donald B. and Stegeman, Mark, Sequential Procurement with Subcontracting. Available at SSRN: https://ssrn.com/abstract=247493

Ian L. Gale (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
(202) 687-5732 (Phone)

Donald B. Hausch

University of Wisconsin at Madison ( email )

975 University Avenue
Madison, WI 53706
United States

Mark Stegeman

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3126 Pamplin Hall
Blacksburg, VA 24061
United States
(540) 231-4923 (Phone)

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