Revisit Centralized Production of Complementary Goods

28 Pages Posted: 11 Apr 2015 Last revised: 17 Apr 2015

See all articles by Zhaolin Li

Zhaolin Li

The University of Sydney Business School

Date Written: April 10, 2015

Abstract

This article revisits a classic mechanism design problem for a principal who procures two complementary goods from a single agent. Although the final product requires both goods to function properly, the principal may purchase unbalanced quantities and discard some of the output. The wasteful spending on unbalanced quantities could help the principal reduce information rents. As such, the common approach of using the total cost of producing a final product as a sufficient statistics, which was used in several early articles, might be flawed.

Keywords: Procurement, Mechanism Design, Complementary Goods, Centralized Production

JEL Classification: D42, D82, L51

Suggested Citation

Li, Zhaolin, Revisit Centralized Production of Complementary Goods (April 10, 2015). Available at SSRN: https://ssrn.com/abstract=2592844 or http://dx.doi.org/10.2139/ssrn.2592844

Zhaolin Li (Contact Author)

The University of Sydney Business School ( email )

Room 490, Merewether Building
Sydney, NSW 2006
Australia

HOME PAGE: http://www.econ.usyd.edu.au/staff/erickl

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