| Summary: | The writer discusses learning about suppliers' efficiency as an important aspect of the relationship between a large manufacturer and its suppliers. He presents a model to illustrate the problem confronting a buyer who wishes to purchase one unit of a good in each period from one set of potential sellers and who is able to set and commit to the buying mechanism. He assumes that these potential sellers will privately learn their cost, which can vary for different sellers, only after producing the good once. He demonstrates that the first best efficient sampling rule is a search process with reservation values that increase over time. It is revealed that the sampling process stops at the first period in which some seller's cost is below the reservation value for that period and that, from then on, the good is permanently bought from the experienced seller with lowest cost. The writer demonstrates that this sampling rule can be implemented and that the purchaser extracts all the rents. The two mechanisms presented to attain this objective are outlined.
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