Procurement via sequential search

Asher Wolinsky*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

Numerous design and repair services are nonstandard and have to be tailored to the needs of the individual buyers. Prospective sellers have to make preliminary efforts in order to come up with a plan, and buyers often consult a number of sellers before making a purchase. The literature on procurement studies such situations for the case of a large buyer who can commit to a procurement mechanism. The present paper considers the case of a small buyer who cannot commit to a mechanism. It develops a simple sequential procurement model and investigates its equilibria and welfare optima. The main qualitative conclusion concerns the inherent inefficiency of the equilibria. The price competition results in too low consultation fees, which induce overly intense search by buyers, which in turn erodes sellers' effort incentives.

Original languageEnglish (US)
Pages (from-to)785-810
Number of pages26
JournalJournal of Political Economy
Volume113
Issue number4
DOIs
StatePublished - Aug 1 2005

ASJC Scopus subject areas

  • Economics and Econometrics

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