Optimal Procurement With Quality Concerns (joint with N icola Persico)
Abstract
We characterize optimal procurement mechanisms in environments where each supplier is privately informed about both its cost and the quality of its p roduct, and the suppliers' costs are affiliated. If the correlation between each supplier's quality and cost is high relative to the degree of affilia tion among all suppliers' costs, it is optimal for the buyer to either buy from a randomly selected supplier and pay the highest possible cost, or do nothing, depending on whether the gains from trade are large enough. If ins tead the degree of affiliation among costs is large relative to the correla tion between quality and cost, a standard second-price auction is optimal. In the remaining case where the affiliation among costs and the quality-cos t correlation are both in an intermediate range, it is optimal to select th e lowest-cost supplier if its cost is sufficiently lower than its competito rs, and randomly select one supplier otherwise. We also show that the secon d-price auction is optimal, if there is sufficient uncertainty about the jo int cost distribution.
DTSTAMP:20260406T013440Z DTSTART:20180625T130000Z DTEND:20180625T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR