Bidding for Contests

Bidding for Contests

The procurement of product development and production services brings special strategic considerations to the buyer-seller relationship in industrial and institutional markets. Multiple sourcing, in particular dual sourcing, is a likely way of dealing with the increased risks faced by buyers. Howeve...

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Bibliographische Detailangaben
Veröffentlicht in:Management Science. - Institute for Operations Research and the Management Sciences, 1954. - 41(1995), 4, Seite 561-576
1. Verfasser: Seshadri, Sudhindra (VerfasserIn)
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 1995
Zugriff auf das übergeordnete Werk:Management Science
Schlagworte:Agency Theory Bidding Contests Dual Sourcing Procurement Business Behavioral sciences Economics Social sciences
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520 |a The procurement of product development and production services brings special strategic considerations to the buyer-seller relationship in industrial and institutional markets. Multiple sourcing, in particular dual sourcing, is a likely way of dealing with the increased risks faced by buyers. However, there is lack of dual sourcing models that analyze the selection and control process in an integrated fashion. This omission has led to apparently contradictory findings in agency and auction theory. The paper models the strategic issues for a cost containment contest between two suppliers. The suppliers are drawn from several vendors who participate in a bidding competition. The supplier with the lower final cost in the contest wins a larger share of the pooled profit fee. Propositions are derived for the optimal cost-plus contest, and comparisons are made with the common incentive contract for the integrated selection and control model. The larger the winner's share, the greater the effort. The buyer can make a credible commitment to the optimal winner's share. As the winner's share rises, however, the bid prices increase due to increased contract risk. This incentive-risk tradeoff determines (a) the optimal winner's share that minimizes expected procurement price, (b) the corresponding profit fee bid by suppliers, (c) the ensuing cost control effort, and (d) the final price for the procurement. Comparisons with the common incentive contract tell us when the cost-plus contest induces more effort, and when bidding for a contest results in a lower final procurement price. 
540 |a Copyright 1995 Institute for Operations Research and the Management Sciences 
650 4 |a Agency Theory 
650 4 |a Bidding 
650 4 |a Contests 
650 4 |a Dual Sourcing 
650 4 |a Procurement 
650 4 |a Business  |x Business operations  |x Commerce  |x Financial transactions  |x Payments  |x Fees 
650 4 |a Business  |x Business operations  |x Commerce  |x Trade  |x Vendors 
650 4 |a Business  |x Business operations  |x Commerce  |x Financial transactions  |x Payments  |x Bidding 
650 4 |a Business  |x Business operations  |x Commerce  |x Procurement 
650 4 |a Behavioral sciences  |x Behavioral economics  |x Behavioral finance  |x Financial incentives  |x Contract incentives 
650 4 |a Behavioral sciences  |x Sociology  |x Human societies  |x Social life  |x Social events  |x Contests 
650 4 |a Economics  |x Microeconomics  |x Economic utility  |x Expected utility 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial analysis  |x Risk management  |x Risk aversion 
650 4 |a Social sciences  |x Communications  |x Negotiation  |x Compromises  |x Tradeoffs 
650 4 |a Business  |x Business administration  |x Corporate governance  |x Corporate policies  |x Cost control 
655 4 |a research-article 
773 0 8 |i Enthalten in  |t Management Science  |d Institute for Operations Research and the Management Sciences, 1954  |g 41(1995), 4, Seite 561-576  |w (DE-627)320623602  |w (DE-600)2023019-9  |x 15265501  |7 nnns 
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