Dual sourcing with price discovery. (English) Zbl 1411.91251
Summary: We consider a (standard) reverse auction for dual sourcing and propose to determine both the providers’ shares and the reserve price endogenously, depending on the suppliers’ bids. Our benchmark considers a two-stage game of complete information. After a first round of bidding, the two most competitive suppliers advance to the second stage and compete again with a refined reserve price, which is based on the lowest price of the excluded providers. We show that at the first stage providers reveal their costs truthfully. At the second stage suppliers balance a trade-off between increasing their share and raising their mark up. Surprisingly, when discarded suppliers are competitive enough, the procedure not only allows taking advantage of dual sourcing but also generates lower procurement expenditures than a standard auction for sole sourcing. We also consider extensions of the benchmark model, including to situations in which providers have private information about their costs.
MSC:
| 91B26 | Auctions, bargaining, bidding and selling, and other market models |
| 91A20 | Multistage and repeated games |
References:
| [1] | Albano, G. L.; Calzolari, G.; Dini, F.; Iossa, E.; Spagnolo, G., Procurement contracting strategies, (Dimitri, N.; Piga, G.; Spagnolo, G., Handbook of Procurement (2006), Cambridge University Press: Cambridge University Press Cambridge, UK), 82-120 |
| [2] | Albano, G. L.; Dimitri, N.; Pacini, R.; Spagnolo, G., Information and competitive tendering, (Dimitri, N.; Piga, G.; Spagnolo, G., Handbook of Procurement (2006), Cambridge University Press: Cambridge University Press Cambridge, UK), 143-167 |
| [3] | Alcalde, J.; Dahm, M., Competition for procurement shares, Games Econ. Behav., 80, 193-208 (2013) · Zbl 1281.91085 |
| [4] | Alcalde, J.; Dahm, M., Dual Sourcing with Price Discovery (2016), QM&ET working paper no. 16-01 · Zbl 1411.91251 |
| [5] | Anton, J. J.; Yao, D. A., Split awards, procurement, and innovation, Rand J. Econ., 20, 538-552 (1989) |
| [6] | Anton, J. J.; Yao, D. A., Coordination in split award auctions, Q. J. Bus. Econ., 107, 681-707 (1992) · Zbl 0825.90302 |
| [7] | Austen-Smith, D.; Banks, J. S., Positive Political Theory II: Strategy and Structure (2005), The University of Michigan Press |
| [8] | Baron, D.; Kalai, E., The simplest equilibrium of a majority-rule division game, J. Econ. Theory, 61, 290-301 (1993) · Zbl 0789.90096 |
| [9] | Bernheim, D.; Whinston, M. D., Menu auctions, resource allocation and economic influence, Q. J. Bus. Econ., 101, 1-32 (1986) · Zbl 0586.90108 |
| [10] | Blume, A.; Heidhues, P., All equilibria of the Vickrey auction, J. Econ. Theory, 114, 170-177 (2004) · Zbl 1059.91025 |
| [11] | Carpineti, L.; Piga, G.; Zanza, M., The variety of procurement practice: evidence from public procurement, (Dimitri, N.; Piga, G.; Spagnolo, G., Handbook of Procurement (2006), Cambridge University Press: Cambridge University Press Cambridge, UK), 14-44 |
| [12] | Corchón, L. C.; Dahm, M., Foundations for contest success functions, Econ. Theory, 43, 81-98 (2010) · Zbl 1186.91021 |
| [13] | Cramton, P.; Ellermeyer, S.; Katzman, B., Designed to fail: the medicare auction for durable medical equipment, Econ. Inq., 53, 469-485 (2015) |
| [14] | Dagan, N., New characterizations of old bankruptcy rules, Soc. Choice Welf., 13, 51-59 (1996) · Zbl 0840.90008 |
| [15] | Dasgupta, S.; Spulber, D. F., Managing procurement auctions, Inf. Econ. Policy, 4, 5-29 (1990) |
| [16] | Dimitri, N.; Piga, G.; Spagnolo, G., Introduction, (Dimitri, N.; Spagnolo, G. P., Handbook of Procurement (2006), Cambridge University Press: Cambridge University Press Cambridge, UK), 3-13 |
| [17] | Edelman, B.; Ostrovsky, M.; Schwarz, M., Internet advertising and the generalized second-price auction: selling billions of dollars worth of keywords, Am. Econ. Rev., 97, 242-259 (2007) |
| [18] | Engel, A. R.; Ganuza, J. J.; Hauk, E.; Wambach, A., Managing risky bids, (Dimitri, N.; Piga, G.; Spagnolo, G., Handbook of Procurement (2006), Cambridge University Press: Cambridge University Press Cambridge, UK), 322-344 |
| [19] | Engelbrecht-Wiggans, R., The effect of regret on optimal bidding in auctions, Manag. Sci., 35, 685-692 (1989) · Zbl 0676.90007 |
| [20] | Engelbrecht-Wiggans, R.; Katok, E., Regret in auctions: theory and evidence, Econ. Theory, 33, 81-101 (2007) · Zbl 1122.91030 |
| [21] | Engelbrecht-Wiggans, R.; Katok, E., Regret and feedback information in first-price sealed-bid auctions, Manag. Sci., 54, 808-819 (2008) · Zbl 1232.91296 |
| [22] | Epstein, G. S.; Mealem, Y.; Nitzan, S., Lotteries vs. all-pay auctions in fair and biased contests, Econ. Polit., 25, 48-60 (2013) |
| [23] | Ewerhart, C.; Fieseler, K., Procurement auctions and unit-price contracts, Rand J. Econ., 34, 569-581 (2003) |
| [24] | Fang, H., Lottery versus all-pay auction models of lobbying, Public Choice, 112, 351-371 (2002) |
| [25] | Filiz-Ozbay, E.; Ozbay, E. Y., Auctions with anticipated regret: theory and experiment, Am. Econ. Rev., 97, 1407-1418 (2007) |
| [26] | Franke, J.; Kanzow, C.; Leininger, W.; Schwartz, A., Lottery versus all-pay auction contests: a revenue dominance theorem, Games Econ. Behav., 83, 116-126 (2014) · Zbl 1284.91174 |
| [27] | Fu, Q.; Lu, J., The optimal multi-stage contest, Econ. Theory, 51, 351-382 (2012) · Zbl 1262.91081 |
| [28] | Fujishima, Y.; McAdams, D.; Shoham, Y., Speeding up ascending-bid auctions, (Dean, T., Proceedings of the 16th International Joint Conference on Artificial Intelligence. Proceedings of the 16th International Joint Conference on Artificial Intelligence, IJCAI-99 (1999), Morgan Kaufmann: Morgan Kaufmann San Francisco, CA), 554-563 · Zbl 0926.00030 |
| [29] | Fullerton, R. L.; McAfee, R. P., Auctioning entry into tournaments, J. Polit. Econ., 107, 573-605 (1999) |
| [30] | Glazer, J.; Ma, C. T.A., Efficient allocation of a “prize”-king Solomon’s dilemma, Games Econ. Behav., 1, 222-233 (1989) · Zbl 0753.90001 |
| [31] | Grimm, V.; Pacini, R.; Spagnolo, G.; Zanza, M., Division into lots and competition in procurement, (Dimitri, N.; Piga, G.; Spagnolo, G., Handbook of Procurement (2006), Cambridge University Press: Cambridge University Press Cambridge, UK), 168-192 |
| [32] | Hoffman, K., Spectrum Auctions, 147-176 (2011), Springer New York: Springer New York New York, NY |
| [33] | Krasnokutskaya, E., Identification and estimation of auction models with unobserved heterogeneity, Rev. Econ. Stud., 78, 293-327 (2011) · Zbl 1215.91033 |
| [34] | Krishna, V., Auction Theory (2010), Academic Press: Academic Press San Diego |
| [35] | Landsberger, M.; Rubinstein, J.; Wolfstetter, E.; Zamir, S., First-price auctions when the ranking of valuations is common knowledge, Rev. Econ. Des., 6, 461-480 (2001) · Zbl 1005.91055 |
| [36] | Lengwiler, Y.; Wolfstetter, E., Corruption in procurement auctions, (Dimitri, N.; Piga, G.; Spagnolo, G., Handbook of Procurement (2006), Cambridge University Press: Cambridge University Press Cambridge, UK), 412-430 |
| [38] | Matros, A.; Possajennikov, A., Lotteries may be revenue superior to auctions in a symmetric setting, Econ. Lett., 142, 74-77 (2016) · Zbl 1396.91269 |
| [40] | Milgrom, P., Putting Auction Theory to Work (2004), Cambridge University Press: Cambridge University Press Cambridge |
| [41] | Milgrom, P. R.; Weber, R. J., A theory of auctions and competitive bidding, Econometrica, 50, 1089-1122 (1982) · Zbl 0487.90017 |
| [42] | Moldovanu, B.; Sela, A., Patent licensing to Bertrand competitors, Int. J. Ind. Organ., 21, 1-13 (2003) |
| [43] | Myerson, R. B., Optimal auction design, Math. Oper. Res., 6, 58-73 (1981) · Zbl 0496.90099 |
| [44] | OECD, The size of government procurement markets, OECD 2002 (2002), Available at |
| [45] | Perry, M.; Wolfstetter, E.; Zamir, S., A sealed-bid auction that matches the English auction, Games Econ. Behav., 33, 265-273 (2000) · Zbl 0966.91037 |
| [46] | Perry, M. K.; Sákovics, J., Auctions for split-award contracts, J. Ind. Econ., 51, 215-242 (2003) |
| [47] | Quint, D.; Hendricks, K., A theory of indicative bidding, Am. Econ. J. Microecon., 10, 118-151 (2018) |
| [48] | Richardson, J., Parallel sourcing and supplier performance in the Japanese automobile industry, Strateg. Manag. J., 14, 339-350 (1993) |
| [49] | Richardson, J.; Roumasset, J., Sole sourcing, competitive sourcing, parallel sourcing: mechanisms for supplier performance, Manag. Decis. Econ., 16, 71-84 (1995) |
| [50] | Scherer, F. M., An industrial organization perspective on the influenza vaccine shortage, Manag. Decis. Econ., 28, 393-405 (2007) |
| [51] | Tunca, T. I.; Wu, Q., Multiple sourcing and procurement process selection with bidding events, Manag. Sci., 55, 763-780 (2009) · Zbl 1232.91332 |
| [53] | Wilson, R., Auctions of shares, Q. J. Bus. Econ., 93, 675-689 (1979) · Zbl 0414.90011 |
| [54] | Ye, L., Indicative bidding and a theory of two-stage auctions, Games Econ. Behav., 58, 181-207 (2007) · Zbl 1154.91419 |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
