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Title: Dual sourcing with price discovery
Authors: Alcalde, José
Dahm, Matthias
First Published: 27-Mar-2019
Publisher: Elsevier
Citation: Games and Economic Behavior, 2019, 115, pp. 225-246
Abstract: We consider a (standard) reverse auction for dual sourcing and propose to determine both the providers' shares and the reserve price endogenously, depending on the suppliers' bids. Our benchmark considers a two-stage game of complete information. After a first round of bidding, the two most competitive suppliers advance to the second stage and compete again with a refined reserve price, which is based on the lowest price of the excluded providers. We show that at the first stage providers reveal their costs truthfully. At the second stage suppliers balance a trade-off between increasing their share and raising their mark up. Surprisingly, when discarded suppliers are competitive enough, the procedure not only allows taking advantage of dual sourcing but also generates lower procurement expenditures than a standard auction for sole sourcing. We also consider extensions of the benchmark model, including to situations in which providers have private information about their costs.
DOI Link: 10.1016/j.geb.2019.03.007
ISSN: 0899-8256
Embargo on file until: 27-Sep-2020
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Copyright © Elsevier 2019. After an embargo period this version of the paper will be an open-access article distributed under the terms of the Creative Commons Attribution-Non Commercial-No Derivatives License (, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.
Description: The file associated with this record is under embargo until 18 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.
Appears in Collections:Published Articles, School of Management

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