split award auctions for supplier retention to stay abreast of current supply market pricing it is common for procurement managers to frequently organize auctions among a pool of qualified suppliers the supply base sole awards can alienate losing suppliers and cause them to defect from the supply base to maintain the supply base and thereby control the high costs of finding and qualifying new suppliers buyers often employ split awards which in turn inflate purchase costs this results in a trade off that we investigate in an infinite horizon stationary setting in which the relative cost position of each supplier is randomly drawn in every period we characterize the optimal split award that minimizes long run costs purchasing and qualification and show that maintaining a constant supply base size using a qualify up to policy is optimal for the buyer we find that neither the extent of multisourcing nor the buyer s value of split awards compared with winner take all auctions are monotonic in the qualification cost and that split award auctions can increase ex ante system buyer and supplier benefits simultaneously to our knowledge this is the first paper studying split award auctions for supply base maintenance and it will hopefully galvanize further research on this important topic this paper was accepted by yossi aviv operations management

divisionalization and entry deterrence this paper assumes that incumbent firms can create new independent divisions more cheaply than potential entrants who must incur the additional overhead costs of new entry the main theoretical result is that such divisionalization ability leads perfectly informed incumbents to preempt all rational entry into their industries in contrast existing models of entry deterrence imply that informed incumbents even those with steadily decreasing average costs will often allow rational entry our result may explain why successful large scale entry by firms with no informational advantage is extremely rare the use of divisions to preempt entry may also explain why large firms in high profit oligopolies often divisionalize allowing their divisions to compete freely despite the negative pecuniary externality that each division imposes on others

exploring the sources of default clustering abstract we study the sources of corporate default clustering in the united states we reject the hypothesis that firms default times are correlated only because their conditional default rates depend on observable and latent systematic factors by contrast we find strong evidence that contagion through which the default by one firm has a direct impact on the health of other firms is a significant clustering source the amount of clustering that cannot be explained by contagion and firms exposure to observable and latent systematic factors is insignificant our results have important implications for the pricing and management of correlated default risk

divisionalization and franchising incentives with integral competing units abstract existing game theoretic models of divisionalization and franchising treat each firm s number of competing units as a continuous variable we account for the integer constraint on divisions and show that the continuous case reasonably approximates the equilibria of the discrete game

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

divisionalization with spatial differentiation abstract this paper assumes that firms can create independent divisions which compete in a market where the product is spatially differentiated our first result is that if the number of firms is exogenous and higher than some critical level then the symmetric subgame perfect equilibrium converges to perfect competition when the cost of divisionalization converges to zero comparisons between the equilibrium level of divisionalization and the socially efficient are also obtained in this context on the other hand if we assume free entry and a fixed cost per firm then the subgame perfect equilibrium implies in some cases a natural oligopoly or monopoly

variable selection and corporate bankruptcy forecasts abstract we investigate the relative importance of various bankruptcy predictors commonly used in the existing literature by applying a variable selection technique the least absolute shrinkage and selection operator lasso to a comprehensive bankruptcy database over the 1980 2009 period lasso admits the majority of campbell et al 2008 predictive variables into the bankruptcy forecast model interestingly by contrast with recent studies some financial ratios constructed from only accounting data also contain significant incremental information about future default risk and their importance relative to that of market based variables in bankruptcy forecasts increases with prediction horizons moreover lasso selected variables have superior out of sample predictive power and outperform 1 those advocated by campbell et al 2008 and 2 the distance to default from merton s 1974 structural model

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

auctioning supply contracts this paper studies a procurement problem with one buyer and multiple potential suppliers who hold private information about their own production costs both the purchase quantity and the price need to be determined an optimal procurement strategy for the buyer requires the buyer to first design a supply contract that specifies a payment for each possible purchase quantity and then invites the suppliers to bid for this contract the auction can be conducted in many formats such as the english auction the dutch auction the first priced sealed bid auction and the vickrey auction the winner is the supplier with the highest bid and is given the decision right for the quantity produced and delivered applying this theory to a newsvendor model with supply side competition this paper establishes a connection between the above optimal procurement strategy and a common practice in the retail industry namely the use of slotting allowances and vendor managed inventory also discussed in the newsvendor context are the role of well known supply contracts such as returns contracts and revenue sharing contracts in procurement auctions the scenarios where the buyer and suppliers may possess asymmetric information about the demand distribution and how the cost of supply demand mismatch is affected by supply side competition finally this paper compares the optimal procurement strategy with a simpler but suboptimal strategy where the buyer first determines a purchase quantity and then seeks the lowest cost supplier for the quantity in an auction

simple auctions for supply contracts this paper studies an optimal procurement mechanism for a newsvendor like problem where the buyer s newsvendor s purchase price of the supplies is not fixed but determined through interaction with candidate suppliers the buyer has priors on the suppliers costs but does not know their costs exactly recent literature has shown how the buyer can implement the optimal procurement mechanism by announcing a revenue function specifying a payment for each quantity the buyer may purchase then auctioning off the supply contract with the specified revenue function in this paper we show that a simple modified version of the standard open descending auction for a fixed quantity is also an optimal mechanism for obtaining supplies what distinguishes this mechanism is its simplicity and familiarity for the suppliers open descending auctions are very easy to run and ubiquitous in practice whereas auctioning supply contracts with a specified revenue function is much less observed and more difficult to explain

an analysis of risk and return in the defense market its impact on weapon system competition with growing austerity pressures from the administration congress and the general public the government s procurement policy has called for increased use of dual source competition as a means of reducing acquisition costs in practice however this policy has produced mixed results the cause seems to be an inadequate understanding of the peculiarities of competition in the government s market this paper examines the risk and return available in the defense market and relates it to the industry s propensity to compete the results show that intelligent observation of the industry s capacity utilization rate would contribute to the development of a more efficient acquisition policy

divisionalization franchising and divestiture incentives in oligopoly a two stage game is used to model firms strategic incentives to divide production among autonomous competing units through divisionalization franchising or divestiture firms simultaneously choose their number of competing units which then engage in cournot competition while it is costly to form autonomous units each firm does so in equilibrium thus reducing firm profits and increasing social welfare relative to the case where firms cannot form competing units with linear demand and costs duopolists choose the socially optimal number of competing units oligopolies with larger numbers of firms choose too many the case of nonlinear demand is also examined copyright 1996 by american economic association

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

coordination in split award auctions we analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier and suppliers have private cost information an intriguing feature of split awards is that the equilibrium bids are implicitly coordinated because a split award price is the sum of offered split prices each supplier can unilaterally veto a split award by bidding very high for the split the need to coordinate is reflected in a split price that does not vary with private information we also explore conditions under which split award auctions may be preferred to winner take all auctions

the effect of monetary policy on corporate bankruptcies evidence from the united states in this article we study the relationship between monetary policy and corporate bankruptcies in the usa the main hypothesis is that an increase in the monetary base or a decrease in the federal f

the economics of missing markets information and games part 1 out of equilibrium beliefs and out of equilibrium behaviour david m kreps the role of common knowledge assumptions in game theory adam brandenburger and eddie dekel repeated games a survey h sabourian information dynamics and equilibrium frank hahn part 2 the economics of parallel research partha dasgupta strategy variables and theories of industrial organization christopher doyle bargaining theory david canning imperfect competition and international trade k gatsios part 3 missing markets consequences and remedies david m newberry rational expectations information and asset markets margaret bray decision making in the presence of risk mark j machina part 4 theoretical modelling of banks and bank runs luca anderlini optimal multi unit auctions eric maskin and john riley labour contract theory tim worrall part 5 intertemporal general equilibrium models timothy j kehoe sunspots stephen burnell an introduction to nonlinear dynamics and its application to economics david kelsey part 6 some micro and macro implications of inventories j p thomas keynes s liquidity preference theory a suggested reinterpretation louis makowski

procuring fast delivery sole sourcing with information asymmetry this paper studies a queuing model in which a buyer sources a good or service from a single supplier chosen from a pool of suppliers the buyer seeks to minimize the sum of her procurement and operating costs the latter of which depends on the suppliers lead time the selected supplier can regulate his lead time but faster lead times are costly although the buyer selects the supplier to source from possibly via an auction and dictates the contractual terms the buyers bargaining power is limited by asymmetric information the buyer only has an estimate of the suppliers costs while the suppliers know their costs precisely we identify a procurement mechanism that minimizes the buyers total cost procurement plus operating this mechanism is not simple it is a numerically derived nonlinear menu of contracts therefore we study several simpler mechanisms e g one that charges a late fee and one that specifies a fixed lead time requirement no menus no nonlinear functions we find that simple mechanisms are nearly optimal generally within 1 of optimal because asymmetric information conveys significant protection to the supplier i e the supplier is able to retain most of the benefit of having a lower cost renegotiation is another concern with the optimal mechanism because it does not minimize the supply chains cost the firms can be both better off if they throw away the contract and start over interestingly we find that the potential gain from renegotiation is relatively small with either the optimal or our simple mechanisms we conclude that our simple mechanisms are quite attractive along all relevant dimensions buyers performance supply chain performance simplicity and robustness to renegotiation

auctions for split award contracts the buyer of a homogeneous input divides his input requirements into two contracts that are awarded to different suppliers he uses a sequential second price auction to award a primary and a secondary contract with a fixed number of suppliers the buyer pays a higher expected price than with a sole source auction the premium paid to the winner of the secondary contract must also be paid to the winner of the primary contract as an opportunity cost when entry is endogenous we identify the conditions under which a secondary contract can increase the number of suppliers and lower the expected price

split awards procurement and innovation in many procurement settings it is possible for a buyer to split a production award between suppliers in this article we develop a model of split award procurement auctions in which the split choice is endogenous we characterize the set of equilibrium bids and allocations for optimizing agents in an environment in which suppliers are fully informed about each other s costs split award equilibria simultaneously exhibit strong collusive features and cost efficiency properties despite the former property of the equilibria upstream investment considerations may lead a buyer to prefer a split award auction format to a winner take all auction format

multiple sourcing and procurement process selection with bidding events we examine the procurement process selection problem of a large industrial buyer who employs reverse auctions for awarding procurement contracts we contrast two classes of commonly used strategies under multiple sourcing namely single stage reverse auctions and two stage processes where price quantity adjustments between the buyer and the suppliers follow a first stage reverse auction deriving bounds of efficiency for these two classes of procurement processes under convex supplier production costs we present insights on the conditions under which each class is preferable for the buyer considering the effect of contracting and processing costs a single stage process is likely to be preferable to a two stage process when the number of bidding suppliers is high especially when capacity is rigid a two stage process with one information transfer in the second stage may be the preferred procurement mode when production is highly scalable i e when the marginal production cost increase with increased production is small when the number of suppliers is low the effect of a decrease in production scalability depends on the current scalability level for high scalability levels a decrease in production scalability may decrease the efficiency of both single stage and simple two stage processes whereas for low scalability levels it tends to increase efficiency for both of these process classes a decrease in production costs makes employing simple processes more attractive when production is highly scalable or when supplier capacity is rigid for intermediate production scalability however a cost decrease may make employing two stage processes with multiple information transfers in the second round preferable for the buyer

divisionalization and strategic managerial incentives in oligopoly under uncertainty abstract this paper argues that divisionalization and incentive contracting are complementary rent shifting tools in the presence of demand uncertainty the role for divisionalization arises if managers know the state of demand prior to making output decisions and if incentive contracts are linear and non state contingent in this context incentive contracts achieve expected stackelberg outcomes but have no impact on the firm s responsiveness to demand shocks divisionalization on the other hand has the strategically beneficial effect of making the firm more responsive to demand shocks

incomplete information and optimal market structure public purchases from private providers abstract market structure is endogenized in a normative model of public procurement featuring a social cost of profit product variety economies of scale and incomplete information about cost depending on parameters either sole sourcing or dual sourcing might be optimal however if the social cost of profit is positive but not too large incomplete information biases optimal market structure in favor of sole sourcing on the other hand this bias in favor of sole sourcing may be reversed if the social cost of profit is large an application to the publicly financed treatment for drug abuse motivates the analysis

price quoting strategies of an upstream supplier this paper studies an upstream supplier who quotes prices for a key component to multiple sellers that compete for an end buyer s indivisible contract at most one of the supplier s quotes may result in downstream contracting and hence produce revenue for her we characterize the supplier s optimal price quoting strategies and show that she will use one of two possible types of strategies with her choice depending on the sellers profit potentials relative to their uncertainties secure whereby she will always have business or risky whereby she may not have business addressing potential fairness concerns we also study price quoting strategies in which all sellers receive equal quotes finally we show that the supplier s optimal mechanism resembles auctioning a single quote among the sellers this paper can assist upstream suppliers in their pricing decisions and provides general insights into multitier supply chains pricing dynamics this paper was accepted by martin lariviere operations management