This paper shows that, in a repeated competitive procurement, a buyer can use the reserve price in a low-price auction as a "public"-hence nondiscriminatory-incentive device to elicit unverifiable quality. We study a model with many firms and one buyer, who is imperfectly informed on the firms' costs. When firms are ex ante identical, the provision of quality is sustained by a sufficiently high reserve price to reward firms for the quality provision and by the threat of setting a low reserve price forever, if quality is not delivered. The buyer can elicit the desired level of unverifiable quality provided her baseline valuation of the project is not too high and the net benefit from unverifiable quality is not too low. These results are robust to firms' heterogeneity in their time preferences when the punishment for a deviation is finite but sufficiently long.

Albano, G., Cesi, B., Iozzi, A. (2022). Teaching an old dog a new trick: Reserve price and unverifiable quality in repeated procurement. JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY [10.1111/jems.12509].

Teaching an old dog a new trick: Reserve price and unverifiable quality in repeated procurement

Cesi, B;Iozzi, A
2022-01-01

Abstract

This paper shows that, in a repeated competitive procurement, a buyer can use the reserve price in a low-price auction as a "public"-hence nondiscriminatory-incentive device to elicit unverifiable quality. We study a model with many firms and one buyer, who is imperfectly informed on the firms' costs. When firms are ex ante identical, the provision of quality is sustained by a sufficiently high reserve price to reward firms for the quality provision and by the threat of setting a low reserve price forever, if quality is not delivered. The buyer can elicit the desired level of unverifiable quality provided her baseline valuation of the project is not too high and the net benefit from unverifiable quality is not too low. These results are robust to firms' heterogeneity in their time preferences when the punishment for a deviation is finite but sufficiently long.
2022
Online ahead of print
Rilevanza internazionale
Articolo
Esperti anonimi
Settore SECS-P/01 - ECONOMIA POLITICA
English
Con Impact Factor ISI
Albano, G., Cesi, B., Iozzi, A. (2022). Teaching an old dog a new trick: Reserve price and unverifiable quality in repeated procurement. JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY [10.1111/jems.12509].
Albano, G; Cesi, B; Iozzi, A
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/311644
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