How the Nature of Product Differentiation Affects Procurement Competition

Abstract

This article uses computational methods that reveal substantive differences among the equilibrium outcomes from three models of procurement competition: a recently developed model requiring numerical solution and two analytically tractable models that might naturally be considered suitable proxies. The models differ in what sellers know about the buyer's preferences for their products, and they yield substantially different prices and payoffs, different implications for institutional choice, surprising intensities of competition, and qualitatively different comparative statics. These findings caution against using the analytically convenient models when the newer model is empirically appropriate. Reinterpreting the models and results also provides new insights regarding price discrimination in oligopoly.

Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus*

“…For example, the setting I analyze might be changed so the buyer’s preferences differ across sellers’ products, as analyzed by Engelbrecht‐Wiggans et al . [2007] and Thomas [2014]. Competition for contracts might use other transaction mechanisms, such as first‐price auctions, the scoring auctions introduced by Che [1993], or the multilateral negotiations introduced by Thomas and Wilson [2002].…”