Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110395
Authors: 
Herweg, Fabian
Schmidt, Klaus M.
Year of Publication: 
2014
Series/Report no.: 
SFB/TR 15 Discussion Paper 484
Abstract: 
For the procurement of complex goods the early exchange of information is important to avoid costly renegotiation ex post. We show that this is achieved by bilateral negotiations but not by auctions. Negotiations strictly outperforms auctions if sellers are likely to have superior information about possible design improvements, if renegotiation is costly, and if the buyer's bargaining position is sufficiently strong. Moreover, we show that negotiations provide stronger incentives for sellers to investigate possible design improvements than auctions. This provides an explanation for the widespread use of negotiations as a procurement mechanism in private industry.
Subjects: 
Auctions
Negotiations
Procurement
Renegotiation
Adaptation Costs
Loss Aversion
Behavioral Contract Theory
JEL: 
D03
D82
D83
H57
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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