Discussion Paper Details

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Title: Reputation and Entry in Procurement

Author(s): Jeff Butler, Enrica Carbone, Pierluigi Conzo and Giancarlo Spagnolo

Publication Date: September 2013

Keyword(s): bid preferences, entry, feedback mechanisms, outsourcing, past performance, procurement, quality assurance, reputation and vendor rating

Programme Area(s): Industrial Organization and Public Economics

Abstract: There is widespread concern 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 game with reputational incentives for quality and the possibility of entry. We allow also the entrant to start off with a positive reputational score. Our results suggest that while some past-performance based reputational mechanisms do reduce the frequency of entry, appropriately designed mechanisms can significantly increase it. Moreover, the reputational mechanism we investigate typically increases quality but not prices, suggesting that well designed mechanisms may generate very large gains for buyers and taxpayers.

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Bibliographic Reference

Butler, J, Carbone, E, Conzo, P and Spagnolo, G. 2013. 'Reputation and Entry in Procurement'. London, Centre for Economic Policy Research.