cutting competition to improve prices?

I always thought that by having more competition you can keep prices lower. But the government's Defense Logistics Agency sees it differently. It just started slashing the number of suppliers of food to our troops saying it will help control costs. My report: http://alanbestbuys.com/id368.html

Quote: AlanMendelson

I always thought that by having more competition you can keep prices lower. But the government's Defense Logistics Agency sees it differently. It just started slashing the number of suppliers of food to our troops saying it will help control costs. My report: http://alanbestbuys.com/id368.html

The move does not cut competition. It increases it. Take chicken as an example. Instead of awarding contracts to 26 vendors at varying prices, the DLA will instead have (at least) 26 bidders for 2 larger contracts. That's more competition, and higher volumes per deal also should drive prices down.

This is already done by most private companies. Manufacturers don't outsource an item from multiple suppliers they put it out to tender and get 1 supplier. It will go out to tender every few years and the supplier might change. The private companies don't do this to pay more.

With the low efficiency of the typical government bureaucracy they will probably save more money on the reduction of staff time tracking 26 suppliers then they will on the food.

Many weapons systems were awarded under an 80/20 basis. Lowest bidder gets eighty percent of the orders; next lowest bidder gets twenty percent. That way: two sets of jigs, two production lines, two sets of foremen, etc. If the call ever came for "wartime production" there was some redundancy in the production lines.

The trouble is in "qualifying". Smaller companies can't repeatedly qualify but never get bids. So it becomes a pool of favored larger companies who then go thru the motions of competitive bidding but are really just taking turns in who has the lowest but rigged bid.

Section Eight housing and Sheltered Workshops provide a good deal of defense department gear so don't think its necessarily skill related. What keeps the market for helmet liners going is not experience with making helmet liners but experience with the bidding process.

Quote: kenarman

With the low efficiency of the typical government bureaucracy they will probably save more money on the reduction of staff time tracking 26 suppliers then they will on the food.

Ding, ding, ding!
We have a winner!