Procurement and predation: Dynamic sourcing from financially constrained suppliers

This paper studies the relationship between a financially constrained firm and a stronger opponent who is not cash-constrained when these firms repeatedly compete in a procurement context. We characterize and discuss the procurement agency's optimal strategy when faced with such asymmetric firms. We highlight a trade-off between the long-run benefits from competition and the short-run benefits from reduced costs. Finally, we show that to reduce costs in the short run, the financially weak firm should be favored in future procurement.