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Sequential Procurement With Subcontracting

Sequential Procurement With Subcontracting 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Economic Review Wiley

Sequential Procurement With Subcontracting

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References (14)

Publisher
Wiley
Copyright
Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
ISSN
0020-6598
eISSN
1468-2354
DOI
10.1111/1468-2354.00093
Publisher site
See Article on Publisher Site

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.

Journal

International Economic ReviewWiley

Published: Nov 1, 2000

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