Showing papers on "Bidding published in 1988"

Returns to bidding firms in mergers and acquisitions: Reconsidering the relatedness hypothesis

Abstract: Recent work has suggested that mergers or acquisitions between strategically related firms will generate abnormal returns for shareholders of bidding firms. Empirical evidence on this hypothesis has been mixed. The relatedness hypothesis is refined by arguing that relatedness is not a sufficient condition for acquiring firms to earn abnormal returns. Rather, only when bidding firms enjoy private and uniquely valuable synergistic cash flows with targets, inimitable and uniquely valuable synergistic cash flows with targets, or unexpected synergistic cash flows, will acquiring a related firm result in abnormal returns for the shareholders of bidding firms.

An Empirical Study of an Auction with Asymmetric Information

Abstract: This paper examines federal auctions for drain age leases on the Outer Continental Shelf from 1959 to 1969. These are leases that are adjacent to tracts on which a deposit has been discovered. The authors find that the data strongly support the hypotheses that neighbor firms are better informed about the value of a lease than nonneighbor firms; that neighbor firms coordinate their bidding decisions; and that both types of firms bid strategically in accordance with the Bayesian-Nash equilibrium model for first-price, sealed-bid auctions with asymmetric information.

A theory of preemptive takeover bidding

Abstract: This article develops a model of the takeover bidding process. The model can be described as a form of auction in which a bidder can acquire costly information after the bidding has begun. Implications concerning the interrelationships between bidders' and targets' profits, bidders' initial offers, single and multiple bidder contests, and the effects of takeover legislation are developed. Additionally, the model provides a rationale for bidders to make high premium ("preemptive") initial bids, rather than making low initial bids and raising them if there is competition.

Welfare Measurements Using Contingent Valuation: A Comparison of Techniques

Abstract: Three commonly used techniques of asking contingent valuation questions are compared: iterative bidding, payment cards, and dichotomous choice. The results reveal that no single contingent valuation technique is neutral in the elicitation of hicksian surplus and each technique has its strengths and weaknesses. The iterative bidding estimates contain a starting point bias, while the payment card and dichotomous choice estimates were influenced by the interviewers soliciting the contingent values. Finally, the analysis of dichotomous choice responses involves unresolved issues that warrant further investigation. On the other hand, dichotomous choice is the easiest technique to administer in a survey setting.

Questionnaire Survey on Bidding in Construction

Abstract: Bid decisions are heuristic in nature as they are made on the basis of experience, judgment, and perception In an attempt to uncover the underlying factors that characterize the bidding decision‐making process, a questionnaire survey was conducted among general contractors This paper contains results based on the response obtained from 400 of the top general contractors in the United States Characteristics of the group, factors affecting bid/no‐bid and percent‐markup decisions, and policies and practices of the contractors are reported The study reveals that bidding decisions are greatly influenced by subjectively evaluated criteria, such as type of job, location, size of job, need for work, Owner, subcontractors, degree of hazard, and degree of difficulty Competition and profitability, although significant, are not the topranked factors

Repeated auctions of incentive contracts, investment and bidding parity with an application to takeovers

Abstract: This article considers a two-period model of natural monopoly and second-sourcing. The incumbent supplier invests in the first period. After observing the incumbent's first-period performance, the buyer may break out in the second period. The investment may or may not be transferable to the second source, and it may be monetary or take the form of human capital. We determine whether the incumbent should be favored at the reprocurement stage, and how the slope of his incentive scheme should evolve over time. We find that the gains from second-sourcing are not so large as one might hope. Finally, we reinterpret the second source as a raider and the breakout as a takeover. We discuss the desirability of defensive tactics and obtain a rich set of testable implications concerning the size of managerial stock options, the extent of defensive tactics, the firm's performance, and the probability of a takeover.

Independent private value auctions: bidder behavior in first, second and third-price auctions with varying numbers of bidders

Abstract: The symmetric equilibrium of third-price auctions is characterized. It makes a number of contrasting predictions relative to firms and second-price auctions: bids exceed private values, the marginal effects on bids of an increase in private values is greater than one, increasing numbers of bidders reduces bids, and risk aversion requires bidding below the risk neutral Nash equilibrium. In the experiment, bidders do not always satisfy the point predictions of the theory. However, the game theoretic models correctly anticipate, at least directionally, the important effects of the price rule changes. Copyright 1993 by Royal Economic Society.(This abstract was borrowed from another version of this item.)

Perfect Equilibria in Budget-Constrained Sequential Auctions: An Experimental Study

Abstract: This article presents an experimental study of bidding behavior in sequential auctions in which there are budget constraints and perfect information. Our experiments test both the properties of such auctions and the predictive power of a refinement of the Nash equilibrium concept. We find that budget constraints affect the behavior of bidders and that the trembling-hand perfect equilibrium is generally a good predictor of prices.

Ex Post Information in Auctions

Abstract: assumptions. Maskin and Riley (1984) show that when the amount a buyer is willing to pay for the auctioned object is not independent of his wealth, expected revenue tends to be lower under open bidding. In contrast, Milgrom and Weber (1982) relax the assumption that valuations are independent and assume instead that buyers' private estimates of the item's value are affiliated. A buyer with a high estimate then tends to believe that other buyers will have higher estimates as well. Maintaining the other assumptions, Milgrom and Weber show that expected revenue is higher in the open ascending bid auction. The intuition behind this result is that in sealed high bid auctions a buyer's bid is determined not only by his own beliefs but, via their bids, by the beliefs of those with lower estimates. A buyer with a low estimate believes that others are more likely to have low estimates as well. He therefore bids less aggressively. It follows that a buyer can beat all opponents who have lower estimates with a bid which is lower than it would be if beliefs were independent.2 Milgrom and Weber also show that if the seller purchases and then publicly reveals information which is positively linked to buyers' valuations, this also raises expected (gross) revenue from an auction. The intuition here is that this helps to reduce the difference in bidders' willingness to pay.3 That such a reduction should raise expected revenue is easily understood for the limiting case in which the seller's information includes all the buyers' private information; for then all buyer asymmetry is eliminated and so expected buyer profit is bid away to zero. The seller therefore reaps the entire surplus. In the following pages the implications of correlated signals are further explored. While Milgrom and Weber emphasized the potential gains to a seller who reveals information ex ante, the focus here is on ex post information. In Section 2 it is shown that, under weak assumptions, the sealed high bid auction is dominated by any auction

Dynamic Markets with Competitive Bidding

Abstract: The model features a dynamic market in steady state in which prices are determined in first-price auctions. It combines competition over time familiar from the pairwise meeting models with instantaneous bidding competition. It inquires how different properties of the model determine the relative importance of these two aspects of the competition and, in particular, how the non-market-clearing price result of the matching and bargaining models is affected by the

A decision support system for purchasing management of large projects

Abstract: This paper describes a model based Decision Support System (DSS) for purchasing materials and components for large projects. The DSS may be used under two scenarios. Under the first scenario, we have a project to execute, and we are looking for a good way to manage the purchasing to minimize the expected costs. The decisions under our control are when and from whom to order each item. Under the other scenario, we are bidding for the project, and wish to assess the costs associated with the purchasing decisions which we should consider before making our bid. In both cases, we take into account expected out of pocket costs as well as lateness and/or expediting penalties. The DSS is designed to help choose the best supplier for each item and schedule the placement of the orders—decisions which are very difficult to make well without such a model based DSS.

Regulation of the firm and natural monopoly

Abstract: The meaning and purpose of regulation regulation and natural monopoly regulation and the theory of the firm rate regulation schemes and their enforcement state control and its enforcement bidding schemes empirical assessment regulation and its alternatives.

Design productivity: a quality problem

Abstract: The question of design productivity is approached by reviewing work carried out in construction and manufacturing. Principles of productivity improvement are denned and applied to design. The design process is examined as part of the project life cycle to draw the conclusion that the quality of design is a vital factor in determining total life cost and other measures of project success. Since design cost is a small percentage of total costs, an increase in design expenditure can frequently reduce total life costs, but this is discouraged by the structure of the industry; especially the system of payment for consultants, and the tendency of clients to sub‐optimize the design costs. Competitive bidding by consultants also has undesirable effects. It is concluded that attention should be given to the procedures for consultant selection, the basis of fee payment and the question of professionalism and standards. Better and earlier communication with the contractor is needed. Further research should be conduc...

Evolution in economic games

Abstract: This paper examines the conditions under which evolutionary processes ‘select’ equilibrium strategies of agents or firms. Under plausible dynamics, optimal selection takes place provided that economic agents are small relative to the environment — that is, each such agent has a negligible effect on others' payoffs. However, when this assumption is not met, survival need not imply optimality. Examples in the contexts of bargaining, bidding, and market competition are presented.

Complete manufacturing control using a contract net: a simulation study

Abstract: Contract nets, which use a bidding mechanism to solve problems, were first proposed as artificial intelligence constructs for distributed problem solving. They have recently been applied to distributed manufacturing control. The contract net presented, called a complete contract net, is intended to implement both high- and low-level control. The complete contract net incorporates mechanisms for just-in-time manufacturing, dynamic lot sizing, and bids based on known costs rather than surrogate costs. Also presented is AdaBuy, a simulator for complete contract nets, and the results obtained using it. >

Bidding Models — Symmetry and State of Information

Abstract: Several competitive bidding models since the late 1960s have been founded, criticized, and even rejected, based on incorrectly stated arguments concerning the apparent symmetry of the competitive positions of the prospective bidders. The proliferation of these arguments has led to confusion about the validity of the proposed models. This paper: (1) Illustrates the correct use of symmetry in competitive bidding as a function of available information and control; (2) explains the differences among nonsymmetric states of information that lead to apparent symmetry in the case of only two competitors; (3) presents and explains the assumptions that lead to Friedman's general bidding model; (4) proves the probabilistic validity of Friedman's model by using correctly stated arguments of symmetry; and (5) provides the foundations for understanding the limitations of other models.

Joint Bidding, Entry, and the Price of OCS Leases

Abstract: We use a two-equation system to estimate the effects of joint bidding on the number of bids and the maximum bid the government received in auctions for Offshore Continental Shelf tracts held between 1979 and 1983 The estimates are corrected for selection bias and simultaneity We find that joint bidding encourages entry in the sense that the number of bids is positively associated with the existence of joint bidding We also find support for the hypothesis that joint bidding increases the high bid with the number of bids held constant We use these results to estimate the cost of a ban on joint bidding for OCS leases

Developing Competitive Bids: A Framework For Information Processing

Abstract: This paper considers information requirements for the development of a bid price in a generalized competitive-bidding situation. A framework for the bid-preparation process is described. The framework outlines the steps required to combine various types of information to produce a bid price. Particular emphasis is placed on information about competitors, criteria to be used by a contract buyer, and the buyer's method of evaluating bids. The framework incorporates the ‘maximization of expected profit’ approach much discussed in the literature, but the mathematical details of this calculation are not considered. Discussion focusses on obtaining and making use of relevant information, and on desirable modifications to expected-profit calculations.

Auctions with Constrained Information: Blind Bidding for Motion Pictures

Abstract: Toward explaining why movie exhibitors have sought legislation requiring distributors to trade-screen films before soliciting bids, a simulation of a Nash equilibrium in an auction suggests that without previews bidders may suffer losses i n expected utility. This supports the hypothesis that risk aversion a nd competition render exhibitors unable to reduce their bids enough t o compensate fully for the dearth of information. An error-components model is used to analyze a unique industry dataset. The results conf irm that a component of the bid is lower (raising mean return), while the variance of return is greater for blindly-licensed films. Copyright 1988 by MIT Press.

On the equivalence between descending bid auctions and first price sealed bid auctions

Abstract: Bidding the same price in descending bid auctions and in first price sealed bid auctions is equivalent to expected utility maximizing behavior, and this is equivalent to dynamically consistent bidding. The claim that, in strategic form, descending bid and first price sealed bid auctions are the same game is thus shown to be false, since the mapping from strategies to payoffs is not the same for the two auction forms.

Fundamental Research in Bidding and Estimating

Abstract: Since Friedman, fundamental research in construction contract bidding and estimating has been concerned with the full problem definition, formulation and calibration The general problem definition is now virtually complete in that bidding involves sequential and simultaneous decisions to be made over time, under conditions of uncertainty, and with multiple, conflicting objectives Problem formulation has been rather haphazard and many ad hoc models have been used, often with very little empirical support A major reason for this appears to be the lack of any real rival to Friedman’s implicit theoretical base This paper examines the approaches and models used in research with a view to the ultimate development of some theory on the subject Firstly, the relationship between bidding and estimating is considered along with the role of cost, price and other estimates Secondly, the criticisms of Friedman’s model are examined and in particular the efficacy of statistical models representing the various parts of the problem Finally, research n estimating accuracy is considered in terms of influencing factors and research methodology Key words: Bidding, estimating, statistical models

Competition and bidding behavior: some evidence from the rice market

Abstract: When objects have uncertain value, the net effect of competition in sealed-bid auctions is ambiguous. The risk of succumbing to the “winner's curse” generally causes bidders to exhibit a non-aggressive response in addition to the standard competitive effect. Sellers can influence the size of the nonaggressive effect by responding to the value uncertainty. This paper focuses specifically on individual bidding behavior in a rice auction market in which sellers issue a product-quality guarantee. The empirical evidence supports my hypothesis that such a guarantee negates the significance of the nonaggressive bidder response.

Cost Comparison Model for Contracting Out Government Services

Abstract: Faced with significant funding shortfalls for the construction, repair, maintenance, and operations of public infrastructure and delivery of public services, governments have searched for strategies to alleviate the funding shortages. Privatization has emerged as a promising alternative to traditional service-delivery approaches. Contracting out the operations of public services, a subset of privatization, offers significant cost savings through competitive bidding for public services. A model that provides a method for making valid cost comparisons between the total costs of private and public performance of public services is presented. Special attention is given to the computation of the additional costs of contract performance. A case study involving solid waste collection and disposal is provided to demonstrate the use of the cost comparison model.

Tenders and estimates: a probabilistic model

Abstract: Problems faced by building project procurement agencies have been given only minor attention in the literature. When setting the rules of the tendering competition it is desirable that there be an appropriate balance between reasonable competition and a reasonable cost of competition. This paper examines some 410 projects obtained by a large state government instrumentality and proposes a model to describe the procurement system. It is probable that the lump sum competitive price in advance system of procurement is unsuitable for small renovation-type works. Larger projects having Bills of Quantities performed very well and satisfactory results can be obtained by inviting four tenders per project. Some suggestions are made for improving the quality of the professional estimate.