BUY-IN THROUGH GOLDPLATING - THE EFFECT OF DEFENSE PROFIT POLICY ON QUALITY DETERMINATION

Authors
CHE YK
Citation
Yk. Che, BUY-IN THROUGH GOLDPLATING - THE EFFECT OF DEFENSE PROFIT POLICY ON QUALITY DETERMINATION, Economics letters, 45(3), 1994, pp. 397-405
Citations number
11
Categorie Soggetti
Economics
Journal title
Economics letters → ACNP
ISSN journal
01651765
Volume
45
Issue
3
Year of publication
1994
Pages
397 - 405
Database
ISI
SICI code
0165-1765(1994)45:3<397:BTG-TE>2.0.ZU;2-G
Abstract
Bower and Osband (RAND Journal of Economics, 1991, 22, 107-119) recogn ized the role of the defense profit policy as a 'handicapping device' that induces low cost firms to aggressively buy in for future profits. When designs are variable and actively competed in the bidding stage, this paper finds that this handicapping role of the profit policy is weakened by the fact that firms can dilute bidding competition by infl ating quality.