Bundling decisions in procurement auctions with sequential tasks

•Study a principal's bundling decision of sequential tasks in a procurement auction•Competition in the second-task market tilts one's choice toward unbundling.•Sign of externality determines the effect of competition in the joint-task market.

This paper investigates the principal's bundling decision during a procurement auction for a project consisting of two sequential tasks, in which task externality exists and information arrives sequentially. We show that, although increasing the number of bidders in the market for the second task always tilts the principal's choice toward unbundling, increasing the number of consortiums that can perform both tasks tilts the principal's preference toward bundling if the externality is negative.