We show that splitting an award can result in lower expected procurement costs, even in a one-time procurement setting, as long as entering the bidding competition is costly. For sufficiently risk-averse bidders, the split award mechanism provides additional insurance against the possiblity of losing the bid and, therefore, any bidding costs. This result contrasts with previous theoretical works which focus on one-time procurement and have concluded that multiple sourcing increases expected procurement costs.
All Science Journal Classification (ASJC) codes
- Decision Sciences(all)
- Arts and Humanities (miscellaneous)
- Social Sciences(all)
- Strategy and Management
- Management of Technology and Innovation