ART - Framework Agreements Model 2008

The document presents a formal analysis of the economic forces at play within the legal framework agreements, specifically focusing on two-stage auctions with incomplete information. The authors compare their approach to a previous study and introduce a model where the central purchasing body (CPB) aims to balance efficiency and competition by potentially restricting entry. The authors establish the basic framework of the model, providing examples and characterizing the equilibrium. They consider a scenario where potential suppliers compete to serve supply contracts to contracting authorities (CAs), with both firms and CAs located on an interval. The cost for a firm to supply a CA is determined by the distance between them. The model assumes complete information among firms and the CPB, and introduces the notion of strategy and timing of the game. The document focuses on describing the actions played at equilibrium, utilizing the concept of subgame perfect equilibrium. Additionally, the authors conduct a welfare analysis to measure the trade-off between efficiency and competition within the model. They also extend the model to include entry costs, further exploring the dynamics of the market. In summary, the document provides a detailed analysis of the economic factors involved in legal framework agreements, specifically focusing on two-stage auctions with incomplete information. It presents a model where the CPB aims to balance efficiency and competition, characterizes the equilibrium, conducts a welfare analysis, and extends the model to include entry costs.