Dennis A. Yao

Split Awards, Procurement, and Innovation

In many procurement settings, it is possible for a buyer to split a production award between suppliers. In this article, we develop a model of split-award procurement auctions in which the split choice is endogenous. We characterize the set of equilibrium bids and allocations for optimizing agents in an environment in which suppliers are fully informed about each others costs. Split-award equilibria simultaneously exhibit strong collusive features and cost-efficiency properties. Despite the former property of the equilibria, upstream investment considerations may lead a buyer to prefer a split-award auction format to a winner-take-all auction format.

Coordination in Split Award Auctions

We analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier, and suppliers have private cost information. An intriguing feature of split awards is that the equilibrium bids are implicitly coordinated. Because a split award price is the sum of offered split prices, each supplier can unilaterally veto a split award by bidding very high for the split. The need to coordinate is reflected in a split price that does not vary with private information. We also explore conditions under which split award auctions may be preferred to winner-take-all auctions.

Second Sourcing and the Experience Curve: Price Competition in Defense Procurement

We examine a dynamic model of price competition in defense procurement that incorporates the experience curve, asymmetric cost information, and the availability of a higher cost alternative system. We model acquisition as a two-stage process in which initial production is governed by a contract between the government and the developer. Competition is then introduced by an auction in which a second source bids against the developer for remaining production. We characterize the class of production contracts that are cost minimizing for the government and that induce the developer to reveal private cost information. When high costs are revealed, these contracts result in a credible cutoff of new system production in favor of the still higher cost alternative system.

Strategic responses to automobile emissions control: A game-theoretic analysis

Abstract This paper examines the dynamics of standard-setting regulation under technological uncertainty and asymmetric information about technological capability. A two-period model which allows fully strategic action is developed and applied to the regulation of automobile emissions, a situation in which standards have been used to “force” innovation. It is found that the initial level of R & D activity caused by regulation increases with the intrinsic technical capability of industry. This result done not depend on marginal productivities of research that favor high-capability types and implies that a poor-capability industry will not attempt to compensate for its inability to innovate with increased research activity. It is also found that the regulators ability to induce investment is greater when R & D is likely to be unsuccessful.

Measuring the Effectiveness of Competition in Defense Procurement: A Survey of the Empirical Literature

This article surveys the empirical literature that has attempted to measure the effects of competition in defense procurement. Its focus is on the conceptual underpinnings of the empirical models rather than on the technical aspects of the estimation procedures. While the empirical studies provide some valuable insight, the studies are flawed because they assume an implicit model of the procurement environment that is inconsistent with reasonable economic behavior on the part of defense contractors and seems to be contradicted by the evidence. In general, the predictive power of the empirical models is also limited by a program-by-program estimation approach in which only a handful of data points are available to estimate two or more parameters. These empirical models could be improved by the use of structural models that assume reasonable economic behavior and provide a theoretical basis for cross-program analyses.

Circumventing Formal Structure through Commitment: Presidential Influence and Agenda Control

Although the formal institutional structure that defines the temporal order of play in a policy game between the Congress and President ought to provide Congress with agenda power, the President is traditionally treated as the dominant player in this relationship. We show that if the President can make “clear-cut” commitments, presidential commitment can counter the dominance hierarchy and the complexion of equilibrium outcomes. Thus, the details of political interactions (in particular, the possibilities for commitment) may be as important as the formal specification of institutional structure.

ATTRACTING SKEPTICAL BUYERS: NEGOTIATING FOR INTELLECTUAL PROPERTY RIGHTS*

Expropriable disclosures of knowledge to prospective buyers may be necessary to facilitate the sale of intellectual property (IP). In principle, confidentiality agreements can protect disclosures by granting the seller rights to sue for unauthorized use. In practice, sellers often waive confidentiality rights. We provide an incomplete information explanation for the waiver of confidentiality rights that are valuable in complete information settings. Waiving sacrifices the protective value of confidentiality to gain greater buyer participation. Buyer skepticism, which reduces participation, arises endogenously from three elements: asymmetric information regarding seller IP, rent dissipation from competition for IP, and ex post costs from expropriation lawsuits.

The Influences of Strategic Management on Antitrust Discourse

This article examines how antitrust law and policy can benefit from ideas developed in the academic strategy field. Because accurate assessment and prediction of the effects of firm conduct depend in part on understanding individual firm capabilities, knowledge from the strategy field and other business fields complements the contributions from industrial organization economics (IO). These business fields also offer theoretical and empirical challenges to the IO paradigm, which dominates antitrust analysis. The article begins with a comparison between strategy and IO and then illustrates how the strategy field can contribute to antitrust merger analysis. The article then assesses the influence of the strategy field on antitrust law and scholarship based on a citation analysis, which reveals little evidence of influence. It concludes with an examination of the likely impediments to the diffusion of strategy field ideas into antitrust.

Delay as Agenda Setting

We examine a multi-issue dynamic decision-making process that involves endogenous commitment. Our primary focus is on actions that impact delay, an extreme form of lack of commitment. Delay is strategically interesting when decision makers with asymmetric preferences face multiple issues and have limited resources for influencing outcomes. A delayed decision becomes part of the subsequent agenda, thereby altering the allocation of resources. The opportunity to delay decisions leads the players to act against their short-run interests when they have strongly asymmetric preferences. Two classes of strategic activity emerge: focusing (reductions in delay) and pinning (increases in delay). We characterize these equilibria, explore how strategic delay alters the benefits to agenda setting, and develop implications for settings where bargaining is feasible. Our analysis applies directly to group, hierarchical, and coalitional decision making settings and illuminates a range of multi-market competitive interactions.

Navigating Natural Monopolies: Market Strategy and Nonmarket Challenges in Radio and Television Audience Measurement Markets

This paper explores how firms within the audience measurement industry, specifically its radio and television markets, have navigated myriad market and nonmarket challenges. The market strategies and the nonmarket forces that constrain those strategies are largely defined by two features: the delineation of its geographic markets by political boundaries and markets that have natural monopoly characteristics. While the pre-monopoly stage or periods of competition may be comparatively short-lived, they are still telling. Monopolists undertake market strategies designed to ensure that they are not supplanted and nonmarket actions geared to avoiding undesirable constraints and reputational damage. Depending on their legal and regulatory environment, customers of the measurement services have used both market and nonmarket actions to mitigate the market power of the audience measurement firms. This paper focuses primarily on the U.S. radio and television audience measurement markets that Arbitron and Nielsen, respectively, have dominated for decades. Non-U.S. markets, which frequently feature America’s foremost firms, illustrate alternatives to America’s largely laissez-faire approach.