Subcontractors’Behavior under Procurement Auctions
In order to lower total costs, prime contractors often solicit estimates for part of their work from (potential) subcontractors who can perform that work (part production) on their behalf, prior to submitting their own estimates in procurement auctions. In this situation, the subcontractors behave as if they were bidding for the subcontract work in auctions conducted by the prime contractors. Estimates submitted by subcontractors are mostly kept private between the prime contractors and subcontractors. Recently, however, some procurement buyers require that the prime contractors reveal the prices of parts produced by subcontractors. We consider these transactions by some thought experiments.