Article | Quarterly Journal of Economics | May 1992

Coordination in Split-Award Auctions

by James J. Anton and Dennis Yao

Abstract

We analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier, and suppliers have private cost information. An intriguing feature of split awards is that the equilibrium bids are implicitly coordinated. Because a split award price is the sum of offered split prices, each supplier can unilaterally veto a split award by bidding very high for the split. The need to coordinate is reflected in a split price that does not vary with private information. We also explore conditions under which split award auctions may be preferred to winner-take-all auctions.

Keywords: Supply Chain Management; Balance and Stability; Cost; Auctions; Bids and Bidding; Production; Five Forces Framework; Supply and Industry; Situation or Environment; Information; Manufacturing Industry;

Citation:

Anton, James J., and Dennis Yao. "Coordination in Split-Award Auctions." Quarterly Journal of Economics 107, no. 2 (May 1992): 681–707. (Reprinted in P. Klemperer, ed., The Economic Theory of Auctions, Elgar, 2000.) Harvard users click here for full text.)