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Publications
Publications
  • spring 1987
  • Article
  • RAND Journal of Economics

Second-Sourcing and the Experience Curve: Price Competition in Defense Procurement

By: James J. Anton and Dennis A. Yao
  • Format:Print
  • | Pages:20 
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Abstract

We examine a dynamic model of price competition in defense procurement that incorporates the experience curve, asymmetric cost information, and the availability of a higher cost alternative system. We model acquisition as a two-stage process in which initial production is governed by a contract between the government and the developer. Competition is then introduced by an auction in which a second source bids against the developer for remaining production. We characterize the class of production contracts that are cost minimizing for the government and that induce the developer to reveal private cost information. When high costs are revealed, these contracts result in a credible cutoff of new system production in favor of the still higher cost alternative system.

Keywords

Acquisition; Government And Politics; Price; Competition; Mathematical Methods

Citation

Anton, James J., and Dennis A. Yao. "Second-Sourcing and the Experience Curve: Price Competition in Defense Procurement." RAND Journal of Economics 18, no. 1 (spring 1987): 57–76. (Harvard users click here for full text.)
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About The Author

Dennis A. Yao

Strategy
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  • Pushed into a Crowd: Repositioning Costs, Resources, and Competition in the RTE Cereal Industry By: Young Hou and Dennis Yao
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