Applied Game Theory to Bid Compensation Model with Heterogeneous Bidders
Date Issued
2011
Date
2011
Author(s)
Peng, Yu-Sheng
Abstract
For projects with high bid preparation cost, such as DB, BOT project, it is often suggested that the owner should consider paying bid compensation to the most highly ranked unsuccessful bidders to stimulate extra effort or inputs in bid preparation. The scope of the project with high bid preparation is often huge, and the stakeholders attach importance to it. Therefore, the project execution affects the profits a lot, and that exhibits importance of bid compensation issues.
Heterogeneous bidders assumption in the article reflect the fact some bidders have advantages in the bid due to specialized field, or reputation, etc. Especially, if the owner is private company, bid advantages is significantly affected by the preference of the owner. How that kind of relative advantages affect the chance of winning the bid is one of chief considerations.
This article aims to analyze bidders’ behaviors and considerations in a bid with bid compensation, study the impacts of bid compensation. Game theory is applied to analyze the behavioral dynamics between competing heterogeneous bidders and project owners. A bid compensation model based on game theoretic analysis is developed in this study. The model provides equilibrium solutions under bid compensation, quantitative formula, and qualitative implications for the formation of bid compensation strategies.
Subjects
Bid compensation
Heterogeneous bidder
Game theory
Project management
Quality improvement
Type
thesis
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