Past performance and entry in procurement: An experimental investigation

There is widespread concern that incentive mechanisms based on past performance may hinder entry in procurement markets. We report results from a laboratory experiment assessing this concern. Within a simple dynamic procurement game where suppliers compete on price and quality we study how an incentive mechanism based on past performance affects outcomes and entry rates. Results indicate that some past-performance based mechanisms indeed hinder entry, but when appropriately designed may significantly increase both entry and quality provision without increasing costs to the procurer.