Heterogeneity-promoting optimal procurement

Ganuza, Juan José; Pechlivanos, Lambros

doi:10.1016/s0165-1765(99)00201-3

“…I treat surplus as an exogenous stochastic variable that varies over suppliers and auctions. This departs from the theoretical literature on scoring auctions, which typically treats value as a choice variable of suppliers (e.g., Cantillon, 2008, 2010;Branco, 1997;Che, 1993;Ganuza and Pechlivanos, 2000;Laffont and Tirole, 1987). The restriction avoids complications due to the potential non-contractability of quality (Che and Gale, 2003;Klein and Leffler, 1981;Taylor, 1993) and the impact of moral hazard and renegotiation (Bajari and Tadelis, 2001;Bajari et al, 2009).…”

Section: Introductionmentioning

confidence: 97%

Modeling the effects of mergers in procurement

Miller¹

2014

International Journal of Industrial Organization

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“…He cannot increase his profits by procuring another design since he does not know ex‐ante the location of the firms and the firms are located according to a uniform distribution. In a related paper, Ganuza and Pechlivanos [2000] study a model in which the location of the firms and the optimal design are public knowledge (and there is no design renegotiation). In this model the optimal strategy for the sponsor is to procure a design different from the optimal one (between the optimal design and the location of the most disadvantaged firm) since by doing so he increases firm competition in the procurement process.…”

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confidence: 99%

COMPETITION AND COST OVERRUNS IN PROCUREMENT^*

Ganuza¹

2007

The J Industrial Economics

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Most cases of cost overruns in public procurement are related to important changes in the initial project design. This paper deals with the problem of design speci¯cation in public procurement and provides a rationale for design misspeci¯cation. We propose a model in which the sponsor decides how much to invest in design speci¯cation and awards competitively the project to a contractor. After the project has been awarded the sponsor engages in bilateral renegotiation with the contractor, in order to accommodate changes in the initial project's design that new information makes desirable. When procurement takes place in the presence of horizontally di®erentiated contractors, the design's speci¯cation level is seen to a®ect the resulting degree of competition. The paper highlights this interaction between market competition and design speci¯cation and shows that the sponsor's optimal strategy, when facing an imperfectly competitive market supply, is to underinvest in design speci¯cation so as to make signi¯cant cost overruns likely. Since no such misspeci¯cation occurs in a perfectly competitive market, cost overruns are seen to arise as a consequence of lack of competition in the procurement market.

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“…: We are going to use a result of Edlin and Shannon (1998), that allows us to obtain strictly monotonic static comparative results without making assumptions on the concavity of the distribution functions. 13 Notice, that dX and d o are independent variables, and we do not need to specify the joint distribution.…”

Section: A Appendixmentioning

confidence: 99%

Competition and Cost Overruns in Procurement

Ganuza

¹

2003

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Most cases of cost overruns in public procurement are related to important changes in the initial project design. This paper deals with the problem of design speci¯cation in public procurement and provides a rationale for design misspeci¯cation. We propose a model in which the sponsor decides how much to invest in design speci¯cation and awards competitively the project to a contractor. After the project has been awarded the sponsor engages in bilateral renegotiation with the contractor, in order to accommodate changes in the initial project's design that new information makes desirable. When procurement takes place in the presence of horizontally di®erentiated contractors, the design's speci¯cation level is seen to a®ect the resulting degree of competition. The paper highlights this interaction between market competition and design speci¯cation and shows that the sponsor's optimal strategy, when facing an imperfectly competitive market supply, is to underinvest in design speci¯cation so as to make signi¯cant cost overruns likely. Since no such misspeci¯cation occurs in a perfectly competitive market, cost overruns are seen to arise as a consequence of lack of competition in the procurement market.

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Heterogeneity-promoting optimal procurement

Cited by 14 publications

References 4 publications

Modeling the effects of mergers in procurement

Modeling the effects of mergers in procurement

COMPETITION AND COST OVERRUNS IN PROCUREMENT^*

Competition and Cost Overruns in Procurement

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Heterogeneity-promoting optimal procurement

Cited by 14 publications

References 4 publications

Modeling the effects of mergers in procurement

Modeling the effects of mergers in procurement

COMPETITION AND COST OVERRUNS IN PROCUREMENT*

Competition and Cost Overruns in Procurement

Contact Info

Product

Resources

About

COMPETITION AND COST OVERRUNS IN PROCUREMENT^*