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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26086
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| Title: | Procurement When Price and Quality Matter |
| Authors: | Asker, John
Cantillon, Estelle |
| Keywords: | optimal auction
multi-attribute auction
differentiated product
multidimensional screening
scoring auction
negotiation
bargaining
procurement |
| Issue Date: | 10-Nov-2006 |
| Series/Report no.: | EC-06-24 |
| Abstract: | A buyer seeks to procure a good characterized by its price and its
quality from suppliers who have private information about their cost
structure (fixed cost + marginal cost of providing quality). We solve
for the optimal buying procedure, i.e. the procedure that maximizes the
buyer’s expected utility. We then use the optimal procedure as a
theoretical and numerical benchmark to study practical and simple buying
procedures such as scoring auctions and negotiation. Specifically, we
derive the restrictions that these simpler procedures place on
allocations and compare them with the optimal allocations to generate
insights about the properties of these simpler procedures and identify
environments where they are likely to do well. We also use the optimal
procedure benchmark to compare the performance of these procedures
numerically. We find that scoring auctions are able to extract a good
proportion of the surplus from being a strategic buyer, that is, the
difference between the expected revenue from the optimal mechanism and
the efficient auction. Sequential procedures (to which many negotiation
processes belong) do less well, and, in fact, often do worse than simply
holding an efficient auction. In each case, we identify the underlying
reason for these results. |
| URI: | http://hdl.handle.net/2451/26086 |
| Appears in Collections: | Economics Working Papers
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