Unsuccessful bids: Coefficient of variation of bids as indicator of project risk

Although unsuccessful bids are usually discarded once the bids are opened under the typical lowest-price sealed-bid project award auction environment, considering efforts and resources expended by responsive and responsible bidders, it is likely that not only a successful bid but also unsuccessful bids can convey important information about the project at hand. This article documents an effort to answer the question that whether projects that receive more dispersed estimates at the bidding stage are more likely to experience greater project cost changes. Taking collective intelligence as the theoretical framework, a total of 210 projects conducted by the Ohio Department of Transportation between 2008 and 2018 were analyzed to investigate the relationship between the coefficients of variation of bids and project final costs. It was found that large projects with above-average coefficients of variation of bids showed greater deviations from original award amounts than large projects with below-average coefficients of variation. The finding enables project owners to study the projects before execution by recouping valuable insights from the community of bidders on the possibility of greater project cost changes faced by the planned projects without complex and mathematically rigorous model

Online reverse auctions research in marketing versus SCM: A review and future directions

An online reverse auction (ORA) is a dynamic procurement mechanism that allows suppliers to compete in real time via a platform to gain a buyer’s business. The ORA is a technological tool introduced in the late 1990s, gaining proponents and detractors among practitioners and academics. Remarkably, while practitioner interestin ORAs has grown, related marketing and supply chain management (SCM) research has declined. This contradiction between theory and practice suggests the need to conduct a systematic review to provide readers with a state-of-the-art understanding of ORAs and recommend fruitful avenues for further research. We focus on the marketing literature and contrast the findings with SCM literature, in such an analysis practical relevance is stressed. Our study offers three main contributions: (1) integration of the cumulative marketing knowledge on ORAs in the 2002–2020 period, (2) development of a three-layer framework of the ORA domain (i.e., conceptualization, ORA as a process, and research setting), and (3) construction of a new research agenda to deal with scholarly challenges and emerging trends.Xunta de Galicia | Ref. GPC ED431B 2022/10Universidade de Vigo/CISU

Optimal Auctions of Procurement Contracts

We consider tenders/auctions for the procurement of items that do not exist at the time of the tender. The cost of production is subject to ex-post shocks, i.e. cost overruns, which cannot be contracted away or insured at the time of tender. The contractors may default due to the cost overruns once the project is underway. We consider a simple contract that specifies the payment in case of default and the award that is paid upon successful project completion. This contract is allocated at the tender and the award part is determined by competitive bidding. We characterize bidding behaviour of contractors in standard tenders and derive the implications for the buyer’s expected cost minimization

Two Essays on the Average Bid Auction

The dissertation investigates an average bid auction, in which the bid closest to the average wins the auction. In the first study, I investigate the equilibrium bidding strategy in the average bid auction, when cost constitutes a private value without the winner’s curse. More specifically, in addition to the pooling equilibrium established by the existing literature, I characterize a partially pooling equilibrium with three bidders, in which the bid function is constant for small cost realizations and strictly increasing in cost for high cost realizations. Moreover, complete necessary conditions for the existence of partially pooling equilibrium are provided in the case of more than three bidders. Lastly, unlike the first price auction, the average bid auction loses efficiency, and the buyer is likely to pay the more compared to first price auction. The second study investigates the characterization of the equilibrium bid function with three bidders in the average bid auction, considering the possibility of cost overrun and penalty. When the penalty is zero, every bidder bids an identical amount. If the penalty is large, either some bidders bid identically and the rest of bidders follow a strictly increasing bidding strategy, or all bidders place an identical bid. Finally, I compare the average bid auction with the first price reverse auction from the buyer’s point of view. If the penalty is not imposed on insolvent bidders, the buyer who chooses the average bid auction could be better off. On the other hand, if the penalty is large enough to prevent all bidders from defaulting, the average bid auction is always worse. This result partly explains why the average bid auction has been widespread in Italy, and the first price reverse auction has been dominantly used for the procurement in the U.S