A general multivariate analysis approach for determining bid mark-up strategy

S. L. Liu, S. Y. Wang and K. K. Lai

Construction Management and Economics, 2005, vol. 23, issue 4, 347-353

Abstract: In choosing a bidding strategy, the original multivariate approach cannot handle a more general and usual bidding situation when the mean value of the bid price for the strategic bidder is not zero. This problem is solved by extending the original approach, assuming that the cost estimate is normally distributed with a non-zero mean value. The new obtained formula for the probability of winning and the expected profit for the generalized approach are proved to be not influenced by the contract datum parameters and are suitable for determining the optimal mark-up strategy for a future construction contract. A supplementary model is proposed and combined with the original model to determine relevant parameters in the bid distribution and to justify the previously originally obtained estimation formula. Finally, the real data in the original approach is used to demonstrate the new multivariate analysis approach.

Keywords: Bid mark-up strategy; multivariate analysis; maximum likelihood estimation; sealed bid auctions; construction contract (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1080/0144619042000190216

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