Dr, Department of Management Science, University of South Carolina, Columbia, USA
Research Article
Information Precision and Seller Bidding Strategies in Procurement Auctions
Author(s): Timothy Fry* and Yu Tian
First-Price-Sealed-Bid (FPSB) are widely used in both the public and private sectors. In a FPSB procurement common value auction, a seller must first estimate their cost to provide the product requested by the buyer and then determine a bid amount by adding a markup to the cost estimate. This markup must consider desired profits as well as informational uncertainties regarding the cost estimates since actual costs of production are known only after the product is produced. In this paper, we investigate the impact of better cost estimates on firm profitability and bidding strategy in a two- and three-bidder auction. Based on field data from over 1000 procurement auctions, we assume that errors in cost estimation follow a normal distribution. This assumption greatly complicates the analysis such that finding an analytical solution is unlikely. Therefore, using a numerical solution appro.. Read More»
DOI:
10.37421/2162-6359.2021.10.599
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