Split-award procurement auctions with uncertain scale economies: Theory and data

Published

Journal Article

In a number of observed procurements, the buyer has employed an auction format that allows for a split-award outcome. We focus on settings where the range of uncertainty regarding scale economies is large and, depending on cost realizations, the efficient allocations include split-award outcomes as well as sole-source outcomes (one active supplier). We examine the price performance and efficiency properties of split-award auctions under asymmetric information. In equilibrium, both award outcomes can occur: the split-award outcome arises only when it minimizes total costs; sole-source outcomes, however, occur too often from an efficiency viewpoint. Equilibrium bids involve pooling at a common price for the split award, and separation for sole-source awards. We provide conditions under which the buyer and suppliers all benefit from a split-award format relative to a winner-take-all unit auction format. Model predictions are assessed with data on submitted 'step-ladder' bid prices for a U.S. defense split-award procurement. © 2009 Elsevier Inc.

Full Text

Duke Authors

Cited Authors

  • Anton, JJ; Brusco, S; Lopomo, G

Published Date

  • May 1, 2010

Published In

Volume / Issue

  • 69 / 1

Start / End Page

  • 24 - 41

Electronic International Standard Serial Number (EISSN)

  • 1090-2473

International Standard Serial Number (ISSN)

  • 0899-8256

Digital Object Identifier (DOI)

  • 10.1016/j.geb.2009.09.001

Citation Source

  • Scopus