FDI Policy,Greenfield Investment and Cross‐border Mergers

This paper examines a multinational's choice between greenfield investment and cross‐border merger when it enters another country via foreign direct investment (FDI) and faces the host country's FDI policy. Greenfield investment incurs a fixed plant setup cost, whereas the foreign firm obtains only a share of the joint profit from a cross‐border merger under the restriction of the FDI policy. This trade‐off is affected by market demand, cost differential, and market competition, among other things. The host country's government chooses its FDI policy to affect (or alter) the multinational's entry mode to achieve the maximum social welfare for the domestic country. We characterize the conditions shaping the optimal FDI policy and offer intuitions on FDI patterns in developing and developed countries.     

BIDS AND COSTS IN COMBINATORIAL AND NONCOMBINATORIAL PROCUREMENT AUCTIONS—EVIDENCE FROM PROCUREMENT OF PUBLIC CLEANING CONTRACTS

Combinatorial procurement auctions enable suppliers to pass their potential cost synergies on to the procuring entity and may therefore lead to lower costs and enhance efficiency. However, bidders might find it profitable to inflate their stand‐alone bids in order to favor their package bids. Using data from standard and combinatorial procurement auctions, we find that bids on individual contracts in simultaneous standard auctions without the option to submit package bids are significantly lower than the corresponding stand‐alone bids in combinatorial auctions. Further, no significant difference in procurer's cost as explained by auction format is found. (JEL D44, H57, L15)     

多属性拍卖与研发竞赛的激励效应比较

采购方向两个潜在的供应商之一采购某种需要研发的创新性技术或产品,并采用多属性拍卖机制或研发竞赛机制来确定哪一个供应商最终能赢得合约。假设供应商是同质的和风险中性的、研发成本具有随机性,且采购方和供应商之间在研发成本上信息不对称,分别研究多属性拍卖机制和研发竞赛机制中供应商的质量决策,比较这两种机制的创新激励效应。结果发现:多属性拍卖机制中,理性的供应商都不会进行研发和参与投标;研发竞赛中奖励金额必须要足够大才能激发供应商的研发与竞赛参与意愿,此时研发竞赛机制要优于多属性拍卖机制。     

Prices for cash and cash for prices? Theory and evidence on convenient pricing

A transaction between a seller and a buyer incurs a payment cost. The payment cost is borne by the seller, depending on the payment instrument the buyer chooses, cash or card. Card payment is more costly than cash payment, so the seller prefers that the buyer pays cash. In this article, we study the strategy of the seller setting a convenient price, which simplifies transactions and pushes the buyer to pay cash. The theoretical analysis, which models both the seller and the buyer in a game setting, derives two propositions: (1) the seller is more likely to set a more convenient price and (2) the buyer is more likely to pay cash a more convenient price. The empirical analysis supports both propositions. Thus, sellers adopt a convenience pricing strategy – prices for cash – and this strategy pushes buyers to pay cash – cash for prices.     

THE OPTIMAL LISTING STRATEGIES IN ONLINE AUCTIONS

This article proposes a unified framework to completely characterize the seller's optimal listing strategy in the online auction as a function of her rate of time impatience. Specifically, the fixed‐price listing, the regular auction, and the buy‐it‐now (BIN) auction are each a solution of the seller's single optimization problem under different values of the rate of intertemporal discount: The perfectly patient seller adopts the regular auction, the sellers with a medium range of time impatience adopt the BIN auction, and the most impatient of sellers adopt the fixed‐price listing. Moreover, under mild conditions, the reverse price is inversely related to the value of the seller's discount factor, either within or across formats. This in turn implies that the posted price in the fixed‐price sale is greater than the reserve price of the BIN auction, followed by that of the regular auction. These predictions offer clear empirical implications.     

考虑固定收益率的采购拍卖投标策略研究

本文分析了单物品多因素采购拍卖中的供应商投标问题,在考虑供应商存在固定收益率的前提下,建立了相应的多因素拍卖中存在固定收益率的投标策略模型。本模型在Che建立的多因素拍卖打分函数模型的基础上,引入Lorentziadis考虑的固定收益率。分析表明,模型中存在3种类型的供应商,且各类供应商具有相应的投标策略。同时,分析了不同类型的供应商的投标策略与其市场竞争力之间的相互关系。     

Integrating dynamic pricing and inventory control for fresh‐agri product under consumer choice

In this article, we investigate a joint pricing and inventory problem for a retailer selling fresh‐agri products (FAPs) with two‐period shelf lifetime in a dynamic stochastic setting, where new and old FAPs are on sale simultaneously. At the beginning of each period, the retailer makes ordering decision for new FAP and sets regular and discount prices for new and old inventories, respectively. After demand realisation, the expired leftover is disposed and unexpired inventory is carried to the next period, for continuing selling. Unmet demand of all FAPs is backordered. The objective is to maximise the total expected discount profit over the whole planning horizon. We present a price dependent, stochastic dynamic programming model taking into account zero lead‐time, linear ordering costs, inventory holding and backlogging costs, as well as disposal cost. As the influence of the perishability, each customer selects his preferred choice based on the utility of product price and quality. By the way of constructing demand rate vector, the original formulation can be transferred to be jointly concave and tractable. Finally, we characterise the optimal policy and develop effective methods to solve the problem. We also conduct numerical studies to further characterise the optimal policy, and to evaluate the loss of efficiency under static policies when compared to the optimal dynamic policy.     

Rational Buyer Meets Rational Seller: Reserves Market Equilibria under Alternative Auction Designs

We examine efficiency properties and incentive compatibility of alternative auction formats that an electricity network system operator may use for the procurement of ancillary services required for real-time operations. We model the procurement auction as a hierarchical multiproduct auction, and study several designs such as a uniform price auction minimizing revealed social cost, a uniform price auction minimizing the system operator's cost and a pay as bid auction minimizing revealed social cost. We take into account that rational bidders will respond to any market design so as to maximize their expected benefit from participating in that market. Under the assumptions of our model, we show that the uniform price auction minimizing revealed social cost is the only one that guarantees productive efficiency. We also find that expected revenue (payment in our case) equivalence between pay as bid and uniform price auctions does not extend to the hierarchical products case and the ranking of these auctions is ambiguous and depends on the data. For the procurement auction minimizing the system operator's cost, we show that misrepresentation of capability may result in capacity shortages if there are capacity constraints. For the case where only higher capability resources are constrained, this will result in random price spikes decreasing in frequency with the price cap (this is the amount paid to capacity in demand states with shortages). When lower type resources are capacity constrained as well, price spikes will be seen for both type of resources. Such artificial shortages result in reduced reliability in real-time operations.     

Combining an improved multi-delivery policy into a single-producer multi-retailer integrated inventory system with scrap in production

Operating in highly competitive global markets, management of the contemporary corporations constantly seeks to cut down various operating costs, such as inventory holding costs in the production units and their affiliated retailers. For the purpose of reducing stock holding cost, this paper combines an improved multi-delivery policy into a single-producer multi-retailer integrated inventory system with scrap in production. We extend a study by Chiu et al. (2013a) by augmenting an alternative n + 1 product distribution policy to their integrated inventory system. An initial delivery of finished items is shipped to multiple retailers to meet demand during the production unit's uptime. After the remaining production lot is produced and screened, fixed quantity n installments of the finished products are delivered to retailers at a fixed time interval. With the help of a mathematical model along with Hessian matrix equations, the closed-form optimal operating policies for the proposed system are derived. Further, the study demonstrates, through a numerical example, significant savings in stock holding cost for both the production unit and retailers.     

Auctions With A Minimum Requirement Of Bids

We show that in a procurement auction with independent and private costs of production and a positive cost of preparing a bid, the requirement of a minimum number of offers for the good to be bought always yields a unique (perfect) Bayesian equilibrium where no firm enters a bid, whatever its cost of production, the number of potential bidders and the size of the bidding cost.
To avoid the no-bid result, the buyer can commit to subsidise the losing bidders in certain circumstances. Alternatively, it can use a stochastic auction, where the provider of the good is not always the firm that bids the lowest price.     

PROCUREMENT EXPERIMENTS WITH UNKNOWN COSTS OF QUALITY

Abstract.  We experimentally examine the efficiency and profitability of two different procurement auctions allowing for quality differences across products. We compare the vector auction with more competition on the sellers' side with a half-auction, reflecting actual procurement practice – an auction for the cheaper variant and bargaining with the contractor about the additional cost of the better quality variant. Our main hypothesis, that buyers are better off when using the vector auction instead of the half-auction, is confirmed when quality differences of variants are large and the uncertainty of the cost difference is also large.     

Taking the Lab to the Field: Experimental Tests of Alternative Mechanisms to Procure Multiple Contracts

The first part of the paper reports the results from a sequence of laboratory experiments comparing the bidding behavior for multiple contracts in three different sealed bid auction mechanisms; first-price simultaneous, first-price sequential and first-price combinatorial bidding. The design of the experiment is based on experiences from a public procurement auction of road markings in Sweden. Bidders are asymmetric in their cost functions; some exhibit decreasing average costs of winning more than one contract, whereas other bidders have increasing average cost functions. The combinatorial bidding mechanism is demonstrated to be most efficient. The second part of the paper describes how the lab experiment was followed up by a field test of a combinatorial procurement auction of road markings.     

Auctions for social lending: A theoretical analysis

Prosper, today the second largest social lending marketplace with nearly 1.5 million members and $380 million in funded loans, employed an auction mechanism amongst lenders to finance each borrower's loan until 2010. Given that a basic premise of social lending is cheap loans for borrowers, how does the Prosper auction do in terms of the borrower's payment, when lenders are strategic agents with private true interest rates? We first analyze the Prosper auction as a game of complete information and fully characterize its Nash equilibria, and show that the uniform-price Prosper mechanism, while simple, can lead to much larger payments for the borrower than the VCG mechanism. We next compare the Prosper mechanism against the borrower-optimal auction in an incomplete information setting, and conclude by examining the Prosper mechanism when modeled as a dynamic auction, and provide tight bounds on the price for a general class of bidding strategies.     

Restrictions on Competition in Municipal Competitive Procurement in Sweden

The bidding process in public procurement in Sweden is a first-price sealed bid auction. Although there is a competitive effect on the bids in this type of auction, the contracting entity can, through the choice of procurement procedure, restrict the number of bidders. This paper studies this choice and imposes an implementation cost on the contracting entity to motivate such a restriction. The results, based on data for Swedish municipalities, suggest that contract specifications and municipality characteristics (that are assumed to influence the implementation cost) affect the volume of the procurement and the number of bidders but not necessarily the choice of procurement procedure.Special thanks to Karl-Gustaf Löfgren and Xavier de Luna for valuable comments and suggestions on this paper. Financial support from The Swedish Competition Authority and the Swedish Council for Research in Humanities and Social Sciences (HSFR) is gratefully acknowledged.     

Entry decisions and bidding behavior in sequential first-price procurement auctions: An experimental study

Though many real life auctions are run independently of each other, from the bidders' point of view they often form sequences of auctions. We investigate how behavior responds to the additional incentives that are present in such auction sequences. Comparing subjects' decisions in single first-price procurement auctions with their decisions in a game consisting of two subsequent first-price procurement auctions, we find that, in line with the theoretical prediction, entry and bidding behavior is crucially affected by the opportunity cost of early bid submission. Though, entry decisions and average bids in the auction sequence systematically deviate from the perfect Bayesian equilibrium prediction. While the nature of the opponent (human being or computer) has no significant effect on these findings, giving subjects additional feedback on winners and prices seems to reduce the deviations from the equilibrium prediction.     

Who should bear the resource cost of electronic transaction?

Using a search theoretic model of money, we examine an optimal allocation of the resource cost of electronic transaction. A transaction using cash incurs a buyer its carrying cost, while an electronic transaction incurs data-processing cost to the payment platform which then raises the resource cost from buyers or sellers using the electronic payment system. An equilibrium allocation of the resource cost implies the seller-take-all-burden scheme by which the payment platform can maximize the volume of electronic transactions by raising the resource cost only from sellers. However, the socially optimal allocation of the resource cost implies the buyer-take-all-burden scheme by which the resource cost should be raised only from buyers in order to maximize welfare.     

Temporary partnership and subcontracting: Pre- vs. post- award outsourcing in public procurement

We empirically compare bids (i.e. prices) from temporary partnerships (TPs), that outsource part of the contract before the auction, and firms that outsource afterwards. Using a comprehensive dataset on procurement auctions for public works in Valle d’Aosta (Italy), we find that the timing of outsourcing affects the bids and the probability of winning the auction. Specifically, TPs bid closer to the payoff maximizing offer and are more likely to win. Hence, the price paid by the public buyer is lower. These results are supported by a simple theoretical setting showing that, by pre-committing to a TP, suppliers have a lower risk of being “held up” by subcontractors than firms that outsource part of the work after the bidding phase. Our results show the advantage for TPs of freely choosing partners, size and boundaries before the auction, highlighting their potential in fostering the effective participation in public procurement procedures of Small and Medium-sized Enterprises (SMEs).     

Sequential versus Bundle Auctions for Recurring Procurement

We compare sequential and bundle procurement auctions in a framework of successive procurement situations, where current success positively or negatively affects future market opportunities. We find that in bundle auctions procurement cost is lower and less risky than in sequential standard auctions, but still higher than in the optimal sequential auction. Only a sequential second price auction leads to the efficient outcome.     

Sequential procurement auctions with risk-averse suppliers

We compare two procurement mechanisms, bundling and unbundling, in a two-stage auction model with risk-averse suppliers. The mechanisms differ in that the two tasks of investment and production are procured through a single auction or two sequential auctions. Suppliers’ production costs are affected by two risk factors, aggregate risk and idiosyncratic risk, as well as by the cost-reducing investment. We show that the bundling mechanism is optimal for a buyer and socially desirable if the aggregate risk is below certain thresholds. The result may not hold true for idiosyncratic risk.     

Competition for procurement shares

We propose a new procurement procedure that allocates shares of the total amount to be procured depending on the bids of suppliers. Among the properties of the mechanism are the following: (i) Bidders have an incentive to participate in the procurement procedure, as equilibrium payoffs are strictly positive. (ii) The mechanism allows variations in the extent to which affirmative action objectives, like promoting local industries, are pursued. (iii) Surprisingly, even while accomplishing affirmative action goals, procurement expenditures might be lower than under a standard auction format.