Centre for Development Economics
and
Department of Economics, Delhi School of Economics
ANNOUNCE A SEMINAR
Split Award Auctions for Supplier Retention
by
Aadhar Chaturvedi
Dept. of Business Administration
University of Namur (FUNDP), Belgium
Thursday, August 2, 2012 at 3:00 p.m.
Venue : AMEX Conference Room (Second Floor)
Department of Economics, Delhi School of Economics
All are cordially invited
Abstract
To stay abreast of current supply-market pricing, it is common for procurement managers to frequently organize auctions among a pool of qualified suppliers (the “supply base”). Sole awards can alienate losing suppliers and cause them to defect from the supply base. To maintain the supply base and thereby control the high costs of finding and qualifying suppliers, buyers often employ split awards which in turn inflate purchase costs. This results in a tradeoff which we investigate in an infinite-horizon stationary setting wherein supplier types (relative costs) are i.i.d. across time. We characterize (1) the optimal split award that minimizes long run costs (purchasing and qualification) and (2) the optimal supply base size that the buyer should maintain. We find that split awards are particularly beneficial for buyers when qualification costs are moderate, and that a higher qualification cost leads to a smaller supply base and therefore does not necessarily increase the extent of multi-sourcing.
Key words : Auctions, Split awards, Multi-sourcing, Supply base.