Beiträge zur Jahrestagung des Vereins für Socialpolitik 2014: Evidenzbasierte Wirtschaftspolitik - Session: Auctions and Procurement E19-V2
For a repeated procurement problem, we compare two stylized negotiating cultures which differ in how the buyer uses an entrant to exert pressure on the incumbent resembling U.S. style and Japanese style procurement. In each period, the suppliers are privately informed about their production cost, but only the incumbent can influence the buyer s procurement mechanism choice with a relationship specific investment. The relative performance of the cultures depends non monotonically on the importance of the investment relative to the value of selecting the lowest cost supplier. We use the model to explain stylized facts from the automotive industry.