Affirmative Action and Dual Sourcing: Towards Supplier Diversity before the Time of Cholera

54 Pages Posted: 10 Apr 2020 Last revised: 24 Jul 2021

See all articles by José Alcalde

José Alcalde

IUDESP, University of Alicante

Matthias Dahm

University of Leicester - Department of Economics

Date Written: May 23, 2020

Abstract

The current COVID-19 pandemic has highlighted the need to rely on a diverse pool
of suppliers, besides achieving cost effectiveness. We propose complementing a share
auction for dual sourcing with affirmative action to create an endogenous set-aside
for a high-cost supplier. In our model more intensive affirmative action strengthens
the targeted provider. This has the potential to level the playing field, inducing more
competitive procurement overall. Our main result provides a condition under which
the endogenous set-aside not only guarantees a very substantial share for the high-cost
supplier, but also reduces the buyer's provision cost compared to a standard auction.
We also illustrate how our approach can help reducing the severity and likelihood of
health product shortages, such as those occurred during the recent COVID-19 outbreak.

Keywords: Affirmative Action, Set-Asides, Dual Sourcing, Supply Chains, Procurement

JEL Classification: D44, D47, H57, J15

Suggested Citation

Alcalde, José and Dahm, Matthias, Affirmative Action and Dual Sourcing: Towards Supplier Diversity before the Time of Cholera (May 23, 2020). Available at SSRN: https://ssrn.com/abstract=3572009 or http://dx.doi.org/10.2139/ssrn.3572009

José Alcalde (Contact Author)

IUDESP, University of Alicante ( email )

University of Alicante
Alicante, Alicante 03071
Spain

HOME PAGE: http://personal.ua.es/jose.alcalde

Matthias Dahm

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

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