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 as- sessing this concern. Within a simple dynamic procurement game where suppliers com- pete on price and quality we study how an incentive mechanism based on past per- formance 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.