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Buying from the Fringe (too)

Author

Listed:
  • Lluis Bru

    (Universitat de les Illes Balears)

  • Daniel Cardona

    (Universitat de les Illes Balears)

  • Jozsef Sakovics

    (Universitat de les Illes Balears and School of Economics, University of Edinburgh)

Abstract

We analyze how to divide the requirements of a (public) firm into lots, when potential suppliers suffer from heterogeneous diseconomies of scale. The optimal design leads to all firms, included the disadvantaged competitors, the fringe, being active, despite the concomitant cost of increasing supplier profit. Setting large lots that only large firms can produce competitively is necessary; but also setting small lots that the fringe firms can competitively bid for, reduces procurement cost. If, in addition, some medium-sized lots are set aside for the fringe -- as allowed by the US regulations, but not by the EU ones -- procurement cost is further reduced.

Suggested Citation

  • Lluis Bru & Daniel Cardona & Jozsef Sakovics, 2023. "Buying from the Fringe (too)," Edinburgh School of Economics Discussion Paper Series 310, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:310
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    File URL: http://www.econ.ed.ac.uk/papers/id310_esedps.pdf
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    More about this item

    Keywords

    Procurement; sequential auctions; block sourcing; regulation; affirmative action;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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