Showing papers on "Bidding published in 1983"

Co-Operative Agreements and the Organization of Industry

Abstract: THE field of industrial organization involves, in major part, the study of how industry is organized and why. The organization of industry, including for example the size distribution of firms, depends in turn on how firms interact. In Markets and Hierarchies, Williamson [11] has identified two major types of interaction: the marketplace (either competition between firms or single transactions between buyers and sellers), and mergers. Earlier, Coase [6] identified the two methods for organizing economic activity as internal to the firm or external to the firm. This paper investigates an intermediate form of interrelationship between firms, which provides yet another way of organizing economic activity, the co-operative agreement. It is important to state just what we mean by co-operative agreements, and to differentiate these type of agreements from other transactions. For our purposes, a co-operative agreement is any long term, explicit agreement amongst two or more firms. This agreement may or may not involve financial remuneration. There can be payment for some good or service: alternatively, the firms may agree to exchange information or other commodity or service: both are co-operative agreements. To meet our definition, the agreement must be long term: a one time purchase of goods and services is not a co-operative agreement, but an agreement to purchase all inputs from one supplier over the next ten years is a co-operative agreement. The agreement must be explicit: just because a majority of all purchases happen ex-post to have been from one supplier does not imply that a co-operative agreement was in force unless there was an explicit understanding before the fact that this would be so. Although the agreement must be explicit, there need not be a written contract for a co-operative agreement to exist. Co-operative agreements can be made verbally, although most agreements are indeed based on a written contract. Finally, a co-operative agreement can take various legal forms: two legal forms that are investigated in this paper are the joint venture and the bidding consortium (which itself may or may not be a joint venture). Since the objective of this paper is to study that transactional middle ground between single transactions in the marketplace and internal organization

I Won the Auction But Don't Want the Prize

Abstract: The "winner's curse" occurs in competitive situations when a successful buyer finds that he or she has paid too much for a commodity of uncertain value. This study provides an experimental demonstration of the winner's curse, and identifies factors that affect the existence and magnitude of this bidding abnormality. In an auction setting, two factors are shown to affect the incidence and magnitude of the winner's curse: (1) the degree of uncertainty concerning the value of the item up for bid and (2) the number of competing bidders. Increasing either factor will increase the range of value estimates and bids, making it more likely that the winning bidder will overestimate the true value of the commodity and thus overbid. A number of researchers have suggested that the winner of a sealedbid auction will often lose-that is, the object acquired will be worth less than the price paid. The winning bidder has fallen prey to the "winner's curse." This idea has been suggested theoretically (Case, 1979; Oren and Williams, 1975; Rothkopf, 1980; Winkler and Brooks, 1980) and has been applied to bidding on oil leases (Capen et al., 1971), stock market investments (Miller, 1977), and baseball players (Cassing and

Impact of Number of Bidders on Competition

Abstract: A contractor seeking the highest expected value from each competitive bid will lower the markup, as the number of competitors increases. The contractor's competitors can be expected to do likewise, and their adjustments affect the contractor's expected value. Thus, the number of competitors affects a contractor's profit twofold. The sheer number of competitors dilutes the probability of winning, and competitors' adjustments of their markups undercut his own markup. Competitors' estimated adjustments are easily included in a bidding analysis based on a modified general bidding model or on Gates' model. Friedman's model is not compatible with adjustments by competitors. There is a natural equilibrium among competitors based on their relative costs. A contractor with lower costs will bid a higher markup but still a lower bid than competitors. But it is not to the contractor's advantage to undercut the opposition further. Coupled with the relative insensitivity of expected value to markup, this leads to stabi...

Valuing environmental commodities: revisited

Abstract: To put the contingent market bidding technique (CMBT) in better perspective, the authors (1) clarify the analytical and operational assumptions required in a 1981 generalized theoretical model of consumer behavior and address implementation concerns that are important when selecting a valuation approach, (2) review the evidence on bases in CMBT studies, and (3) give several suggestions for better use of CMBTs. 23 references.

Joint Bidding, Information Pooling, and the Performance of Petroleum Lease Auctions

Abstract: This article uses a game-theoretic bidding model to examine the effect of joint bidding in offshore petroleum lease auctions. It shows that joint bidding increases the total social value of the lease offering and, in most cases, does not significantly decrease the percentage of social value captured by the government. These results follow from the fact that pooling of information concerning a prior unknown tract values allows for more accurate estimates. The anticompetitive effect of a reduced number of bidders tends to be offset by the well-known fact that better informed participants bid more aggressively. The findings are striking in that the model abstracts entirely from the effects of increased entry and greater risk diversification, the two common arguments in support of joint bidding. 12 references, 13 footnotes, 3 figures, 2 tables.

OCS Leasing and Auctions: Incentives and the Performance of Alternative Bidding Institutions

Abstract: In Watt v. Energy Action Educational Foundation, the Supreme Court rebutted a challenge to the federal government's mix of "nontraditional" outer continental shelf lease-auction mechanisms authorized under the 1978 OCS Amendments. The issues of this case addressed here include: the economic intent of the congressional language; incentive properties of various of the authorized auction processes; methodological shortcomings inherent in the implicit congressional directive for field experimentation; and, the usefulness of laboratory experimental economics in answering relevant auction-policy questions. The discussion of experimental economics includes evidence already gained from laboratory experiments relating to hypotheses about auction-market performance.

Sealed Bid Auctions and the Search for Better Information

Abstract: by the quality of the information available to the players. In particular the analysis is designed to give some insight into the players' incentives to obtain an informational advantage over their competitors. Our interest lies mainly in understanding the economic structure of the problem, and analysing the interactions that occur among the players. We have, therefore, limited ourselves to the analysis of a model with quite restrictive assumptions. The advantage of proceeding in this manner is that it enables us to obtain interesting explicit results with only a limited amount of mathematical computations. The disadvantage is, of course, that it is unclear to what extent the results can be generalized. In the model analysed here it turns out that: (a) Aggregate expected profits of the bidders fall, as the quality of the information available to them increases. It is thus mainly the seller who gains, when all participants try to improve their information. This seems to be a quite general result, and has been derived under considerably less restrictive assumptions in Case (1979), Reece (1978) and Rothkopf (1969), among others. (b) Even in the absence of collusion, it may turn out that no bidder ever places a bid greater than or equal to the true value of the tract. While it can easily be seen that this result depends strongly on the specific assumptions of the model we analyse, it does illustrate that it will be very difficult to prove that the players of an auction game are acting collusively. (c) Each participant's bidding strategy will be affected by the quality of the information available to his competitors. When this interaction is taken into account, it turns out that an increase in the quality of the information available to any one of them may lead to a fall in his expected profits. This is the main novel result of the paper.

The Impact of Joint Ventures on the Market For OCS Oil and Gas Leases

Abstract: The OCS Lands Act Amendments of 1978 stipulated that the Secretary of the Interior offer at least 20 percent of the offshore oil and gas leases through alternative bidding systems to the cash-bonus method. The requirement was motivated by the belief that the alternative systems would enable more independent firms to participate in the OCS lease sales [12]. This belief is based on the assumption that capital markets are incapable of efficiently supplying funds for oil and gas exploration. Smaller firms which are more sensitive to the external capital market are deterred from entering the lease sales. Those that do successfully bid are drained of their financial resources and must delay exploration. Further, exploration firms require a higher rate of return on their investment, leading to lower cash bonuses. Recently, a federal appeals court ruled in favor of a suit brought by the Energy Action Education Foundation to prohibit further leases sales until all bidding options set forth in the 1978 OCS Lands Act Amendment are available for use. The Energy Action Education Foundation had complained that the widespread use of the cash-bonus system had failed to yield the government a fair market value for the leases [2]. In addition, there has been recent political pressure to extend the ban on joint bidding to the sixteen largest U.S. oil and gas firms. However, the present administration's drive to accelerate the pace of OCS leasing could very well increase the industry's demand for joint ventures. Thus, a fresh look at the actual performance of past joint bidding practices seems particularly relevant at this time. Concerns about small firm participation are, of course, not without foundation. The initial capital requirement for participating in the OCS market is very substantial and places a potential barrier. Average winning bids in the established areas of offshore Louisiana and Texas are in the range of $2000 to $10,000 per acre or $10 to $50 million per tract. In a recent Gulf of Mexico sale, a consortium of Superior Oil Company, Pennzoil

Bonus Bidding and Bottom Lines: Federal Offshore Oil and Gas

Abstract: Much can be observed in the statistics of bonus bids. For one thing, more information about a lease may not mean bidders agree more with their bids. However, whether any or all bidders are achieving satisfactory results at their bottom lines cannot be observed from bid statistics. Indeed, it does appear that bidders' results are not satisfactory. Furthermore, an aggressive bidder who ''wins'' at bidding time appears, in this study, less profitable than a conservative bodder.

The Arizona experiment: Competitive bidding for indigent medical care

Abstract: Prologue: Some 25 million Americans who are poor and disabled depend upon Medicaid for their medical care. What happens to this beleaguered program will, more than any other public policy issue, de...

Reasons Given for Risky Judgment and Choice: A Comparison of Three Tasks

Abstract: Subjects spoke aloud their reasons for choice in three risky decision experiments-a bidding task, a binary choice task, and a multi-option choice task. The options were simple bets varying on two risk dimensions, an amount and a chance to win. The major propositions contained in reasons were classified as value judgments, heuristics, decision rules, and miscellaneous, and the pattern of such propositions varied across tasks. Task differences were found in the ratio of absolute to relative judgments and the type of computational heuristic employed. A large proportion of miscellaneous propositions in the bidding task referred to the bidding transaction. Implications of these findings were discussed for the nature of framing and anticipatory processes involved in the production of reasons.

Joint Bidding, Collusion, and Bid Clustering in Competitive Auctions: Reply

Abstract: This paper examines certain "anti-competitive" effects of joint bidding that have been overlooked in the literature on competitive auctions. We know that whenever joint bidding occurs, potential rivals join together in a consortium that effectively precludes competition among its membership. This creates the appearance, at least, of open collusion and restraint of trade. Public concern has caused the propriety of joint bidding to be reviewed on a number of occasions; for example, in the new-issue market for corporate, state, and municipal bonds [2; 6; 10; 13; 17; 26]; in state and federal auctions of offshore petroleum tracts [4; 7; 11; 12; 16; 22]; in the weekly auctions of the London Tea Brokers' Association [23]; and in public offerings of construction and engineering contracts throughout the United States and Europe [1; 5; 8; 15]. The method of analysis presented in the current paper is applicable to all of these markets. The traditional objection to joint bidding is that it may suppress competition by reducing the total number of bids tendered. Markham [11] articulated this concern in his pioneering study of the auction market for offshore petroleum tracts:

Asymmetry of Information, Regulatory Lags and Optimal Incentive Contracts: Theory and Evidence

Abstract: procurements. The procurement process and the equilibrium bidding behavior is modelled in sections II and III and the effect of contract parameters and other structural variables on expected procurement costs are explicitly derived. The existing models are enriched by incorporating a technology for cost reduction where the investment in cost reduction made by the contractor is unobservable to the utility. In the presence of such informational asymmetry, the optimal incentive parameter to be used is derived in terms of information available to the utility. In section IV the effects of changing contractual parameters and other structural variables (number of contractors bidding, the riskiness of the production process, etc.) on equilibrium bidding behavior and ex post cost reduction incentives are derived. In section V we relate some of the implications of our model to a sample

Financing long term care under medicaid: Competitive bidding, vouchers and expenditure matching in an hmo framework

Abstract: Within the framework of a Long Term Care—HMO, a series of innovative financing mechanisms are proposed to encourage efficiency, reduce cost increases and promote the quality of long term care. Competitive bidding is used to set prices for long term care. Based upon these competitively set prices, HMO enrollees are given long term care vouchers with which to purchase care. Cost savings, arising from choices of care less expensive than the value of the voucher, are shared with the enrollee and the case management team. Incentive payments to this team are made only after a quality of care review. A portion of the payment to the long term care provider is set aside as a quality assurance withhold. If quality of care is inadequate, the withhold is forfeit.

Selecting used tunnel boring machines: the pros and cons

Abstract: The cost of tunnel excavation can be minimized and bidding for such work may be much more competitive with the utilization of used tunnel boring machines. An increasing number of tunnels have been excavated with used machines, although occasionally with disastrous results. Based on past experience, methods will be suggested to evaluate the condition and suitability of used machines on a given project.

Competitive bidding and voucher payments for implementing the new federalism with special emphasis on programs for the aging.

Abstract: Principles from the economics of decentralization are applied to the planning and budgeting of social services for the elderly. The standard model of corporate decentralized planning and budgeting is extended to allow different levels of government to pursue qualitatively different goals. A safety-net voucher plan is also proposed to protect the most vunerable population from possible termination of services due to poorly formulated local plans. Such a decentralized planning and budgeting system would make Federal and State influence on local plans proportional to their contribution to total expenditures.

BIDSIM: Using a Competitive Bidding Simulation to Highlight Pricing Issues

Abstract: BIDSIM is a case and simulation exercise which is designed to introduce users to important pricing issues such as monitoring competitive activity and drawing up contingency plans. BIDSIM is different from other marketing simulation games in that inputs are very simple and no "black box" is required to process output. Through the dynamics of competitive sealed bidding, BIDSIM is able to create a realistic pricing environment with a minimum knowledge of simulation models. Such simplified simulation exercises may prove to be especially useful to marketing educators who are interested in providing students with hands-on training in the classroom.