The ambiguity dilemma in procurement processes
Date
2019
Authors
Rajabi Asadabadi, Mehdi
Sharpe, Keiran
Journal Title
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Volume Title
Publisher
Emerald Group Publishing Ltd.
Abstract
Purpose – The purpose of this paper is to use game theory and ambiguity theory to show how “economically rational” vendors will behave in a
procurement process that runs over more than one period. In light of that behavior, we have proposed “economically rational” counter-strategies on
the part of purchasers.
Design/methodology/approach – Based on a perception–expectation framework, a unique game-based approach is designed. The authors have
proposed “economically rational” counter-strategies on the part of purchasers, which are premised on the theory of rational agency.
Findings – Ambiguity in the procurement process is a bane for procuring principals and a boon for suppliers – for the former, it is an issue to be
managed, and for the latter it provides an opportunity to extract “insurance rents” from the principals. The authors show that, under certain
conditions, the contracting principal can be exploited by a rational, rent-extracting vendor. In particular, they show that there is an incentive for a
vendor to delay the resolution of ambiguities in the contract until late in the procurement process, when the insurance rents are at a maximum.
Originality/value – This study contributes to the current literature by highlighting an existing problem in the procurement process and describing it
using decision theory under ambiguity in a game-like setting. Specifically, the authors use game theory in a unique way to deal with imperfect
information coupled with ambiguity.
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Source
Journal of Business and Industrial Marketing
Type
Journal article
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Access Statement
Open Access
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Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0)
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