Split Awards, Procurement, and Innovation
Volume: Volume 20, No. 4
Issue: Winter 1989
Pages: pp. 538-552
Authors: James J. Anton and Dennis A. Yao
Title: Split Awards, Procurement, and Innovation
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.
JEL Classification
Microeconomics Theory of Auction Markets (0227)