BIDDING STRATEGIES

Bidding Strategies

Bidding Strategies

Single Unit Auction: Only one item is being sold. If a case of coffee mugs is being auctioned, and bidders have to bid on the whole case, then this would be a single unit auction. If bidders can buy individual coffee mugs, then this is a Multiple Unit auction.

The bidder must first determine to what extent the actions of other bidders will affect the amount he/she is willing to bid. At one extreme, the other bidders' actions are irrelevant (private values). At the other extreme, the amount the bidder is willing to bid is entirely dependent on the other participants' actions (common values). Some examples:

Consider the case when a bidder is interested in purchasing a color inkjet printer. The computer store down the street has them on sale for $195, and an Internet site has the same printer up for auction with a special offer of free shipping. Our bidder would be willing to pay up to, say, $180 for purchasing the printer at auction. He/she does not care if there are no other bidders, if all the other bidders refuse to bid over $20, or if several bidders are all willing to bid over $250. Our bidder is only interested in whether he/she can purchase the printer for $180 or less and the other bidders' actions are irrelevant. This is an example of private values.

Now consider the case when a bidder is a trader in collectibles, perhaps Coca-Cola bottles. Our bidder has at least one of every kind of bottle already and is only continuing to purchase bottles in the hope of reselling them at a profit. In this case, our bidder is very interested in what the other bidders do in order to determine what the current perceived value is of a particular bottle. If there are many bids around $5 and the quantity of bids drops off gradually at about $11, then that information is useful in developing a feel for the market and what our bidder should do. Contrast this with the situation where there are many bids around $5 and two bidders are aggressively competing to raise the current winning bid to $25. Since our bidder is very interested in other bids, this is an example of common values.

Contractors are generally ranked in a bidding process according to their competitiveness. Existing bidding practice in selecting contactors includes pre-qualifying all applicant contractors, short-listing tenders, and selecting a winner contractor normally only by considering the tender price. Previous studies have presented several methods for assessing contractor competitiveness in pre-qualifying and short-listing tenders. The study by Flanagan and Norman (1982) suggests measuring a bidder's competitiveness by the success rate, which is calculated by a percentage of the bidder's successful contract value to its total bids within a certain period. Drew and Skitmore (1993) defined contractor bidding competitiveness as a percentage measured by a model C=100×x-x 1/x 1, where C denotes contractor competitiveness, x for the value of bid submitted by the concerned contractor, and x 1 ...