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Split Awards, Procurement, and Innovation

James J. Anton and Dennis A. Yao
The RAND Journal of Economics
Vol. 20, No. 4 (Winter, 1989), pp. 538-552
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/2555732
Page Count: 15
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Split Awards, Procurement, and Innovation
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Abstract

In many procurement settings, it is possible for a buyer to split a production award between suppliers. In this article, we develop a model of split-award procurement auctions in which the split choice is endogenous. We characterize the set of equilibrium bids and allocations for optimizing agents in an environment in which suppliers are fully informed about each other's costs. Split-award equilibria simultaneously exhibit strong collusive features and cost-efficiency properties. Despite the former property of the equilibria, upstream investment considerations may lead a buyer to prefer a split-award auction format to a winner-take-all auction format.

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