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Asymmetry and Collusion in Sequential Procurement: A “Large Lot Last” Policy

by Giancarlo Spagnolo (with G. L. Albano), published in the B.E. Journal of Theoretical Economics

Sequential procurement of multiple contracts/lots is widespread and often regularly repeated.We analyze how sequentiality and its interaction with asymmetries across bidders and lots affect the sustainability of supplier/bidder collusion. Sequential procurement stabilizes supplier collusion (compared to simultaneous procurement) by allowing not only to identify or punish deviations within the sequence, but also to allocate the "last lot" to the bidder with the highest incentive to defect. We then analyze how to counteract these effects by exploiting (or creating) asymmetries in the value of lots, finding that the most effective policy procures the most valuable lot at the end of each sequence.

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