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Review of Industrial Organization

, Volume 40, Issue 3, pp 191–205 | Cite as

Construction Procurement Auctions: Do Entrant Bidders Employ More Aggressive Strategies than Incumbent Bidders?

  • Sheng LiEmail author
  • Peter Philips
Article

Abstract

Asymmetric auction theory predicts that weak bidders will bid more aggressively when facing strong bidders, while strong bidders will bid less aggressively when facing weak bidders. This paper finds empirical evidence to support this hypothesis regarding the behavior of weak bidders in construction auctions. Examining a comprehensive data set of more than 7,500 Utah construction procurement auctions, we find that entrants bid more aggressively than do incumbents for most subcontractor types. Reflecting their inexperience and uncertainty regarding the true cost of projects, entrants’ bids are found to be more widely dispersed around the central tendency of bids.

Keywords

Aggressive Bidder asymmetry Dispersion Entrants Incumbents Procurement auctions 

JEL Classification

D44 D82 L74 

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Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  1. 1.Chinese Academy of Finance and DevelopmentCentral University of Finance and EconomicsBeijingPeople’s Republic of China
  2. 2.Department of EconomicsUniversity of UtahSalt Lake CityUSA

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