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Skew to win, not to profit: unbalanced bidding among informed bidders
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics.
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics.
2019 (English)In: Journal of Public Procurement, ISSN 1535-0118, E-ISSN 2150-6930, Vol. 19, no 1, p. 46-54Article in journal (Refereed) Published
Abstract [en]

Purpose: Several sectors, especially the construction industry, use unit price contracting (UPC). This contracting form provides agents, ex ante, with estimated quantities of the work to be done. Competing agents then offer corresponding unit prices i.e. the bid is a price vectors, and most often the lowest vector sum is awarded the contract. This way of procuring is not only transparent but also entails a potential problem of unbalanced bidding. Unbalanced bidding occurs when an informed agent skews unit prices to win the ex ante bid. The concept is not new topic in research, but theoretical models from an economics perspective are not extensive.

Design/methodology/approach: This paper will focus on how competition among informed bidders will affect the optimal solution.

Findings: It is shown that skewing is still a dominating strategy under competition. However, competition will decrease, but not necessarily eliminate, information rents.

Originality/value: In this setting, unbalanced bidding could mainly be seen as a way to win the contract and not to extract information rents. Thus, it would not constitute an efficiency problem for the client.

Place, publisher, year, edition, pages
Emerald Group Publishing Ltd. , 2019. Vol. 19, no 1, p. 46-54
Keywords [en]
Bid, Contract, Price, Variability, Competition, Contractor
National Category
Economics
Research subject
00 Road: General works, surveys, comprehensive works, 02 Road: Economics
Identifiers
URN: urn:nbn:se:vti:diva-13647DOI: 10.1108/JOPP-03-2019-024Scopus ID: 2-s2.0-85061774921OAI: oai:DiVA.org:vti-13647DiVA, id: diva2:1316317
Available from: 2019-05-17 Created: 2019-05-17 Last updated: 2019-06-27Bibliographically approved

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Nyström, JohanMandell, Svante

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
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  • vancouver
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Language
  • de-DE
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  • Other locale
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Output format
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