Working Paper Series in Law and Economics, Konkurrensverket (Swedish Competition Authority)
Jeffrey V. Butler, Enrica Carbone, Pierluigi Conzo and Giancarlo Spagnolo
Reputation and Entry
Abstract: There is widespread concern among regulators that favoring
suppliers with good past performance, a standard practice in private
procurement, may hinder entry by new firms in public procurement markets.
In this paper we report results from a laboratory experiment exploring the
relationship between reputation and entry in procurement. We implement a
repeated procurement model with reputation for quality and the possibility
of entry in which the entrant may start off with positive reputation. Our
results suggest that while some past-performance based reputational
mechanisms can reduce the frequency of entry, appropriately designed
mechanisms significantly stimulate it. We find that our reputational
mechanism increases quality but not prices, so that the introduction of
this kind of mechanism may generate large welfare gains for the buyer.
Keywords: Cross-border procurement; Entry; Feedback mechanisms; Incomplete contracts; Limited enforcement; Incumbency; Multidimensional competition; Outsourcing; Past performance; Procurement; Quality assurance; Small business subsidies; Reputation; Vendor rating; (follow links to similar papers)
JEL-Codes: H57; L14; L15; (follow links to similar papers)
53 pages, May 15, 2013
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