Second sourcing and the experience curve: Price competition in defense procurement

Published

Journal Article

© 1987 Wiley-Blackwell Publishing, Inc.. All rights reserved. We examine a dynamic model of price competition in defense procurement that incorporates the experience curve, asymmetric cost information, and the availability of a higher cost alternative system. We model acquisition as a two-stage process in which initial production is governed by a contract between the government and the developer. Competition is then introduced by an auction in which a second source bids against the developer for remaining production. We characterize the class of production contracts that are cost minimizing for the government and that induce the developer to reveal private cost information. When high costs are revealed, these contracts result in a credible cutoff of new system production in favor of the still higher cost alternative system.

Full Text

Duke Authors

Cited Authors

  • Anton, JJ; Yao, DA

Published Date

  • January 1, 1987

Published In

Volume / Issue

  • 18 / 1

Start / End Page

  • 57 - 76

Electronic International Standard Serial Number (EISSN)

  • 1756-2171

International Standard Serial Number (ISSN)

  • 0741-6261

Digital Object Identifier (DOI)

  • 10.2307/2555535

Citation Source

  • Scopus