Sequential procurement auctions and their effect on investment decisions
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Author(s)
Figueroa, Nicolás
Cisternas Leyton, Gonzalo Sebastian
Date Issued
October 2015
Journal
The RAND Journal of Economics
Publisher
Wiley
Citation
Cisternas, Gonzalo, and Nicolás Figueroa. “Sequential Procurement Auctions and Their Effect on Investment Decisions.” The RAND Journal of Economics 46, no. 4 (October 2015): 824–843.
Version
Original manuscript
Abstract
We characterize the optimal mechanism and investment level in an environment where (i) two projects of independent costs are purchased sequentially, (ii) the buyer can commit to a two-period mechanism, and (iii) the winner of the first project can invest in a cost-reducing technology between auctions. We show that, in an attempt to induce more competition in the first period, the optimal mechanism gives an advantage to the first-period winner in the second auction. As a result of this advantage, the first-period winner invests more than the socially efficient level. Optimal advantages, therefore, create two different channels for cost minimization in buyer-supplier relationships.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1111/1756-2171.12112
