Quick abnormal-bid-detection method for construction contract auctions

Noncompetitive bids have recently become a major concern in both public and private sector construction contract auctions. Consequently, several models have been developed to help identify bidders potentially involved in collusive practices. However, most of these models require complex calculations and extensive information that is difficult to obtain. The aim of this paper is to utilize recent developments for detecting abnormal bids in capped auctions (auctions with an upper bid limit set by the auctioner) and extend them to the more conventional uncapped auctions (where no such limits are set). To accomplish this, a new method is developed for estimating the values of bid distribution supports by using the solution to what has become known as the German Tank problem. The model is then demonstrated and tested on a sample of real construction bid data, and shown to detect cover bids with high accuracy. This paper contributes to an improved understanding of abnormal bid behavior as an aid to detecting and monitoring potential collusive bid practices.

Analysis of the distribution of the number of bidders in construction contract auctions

The number of bidders, N, involved in a construction procurement auction is known to have an important effect on the value of the lowest bid and the mark-up applied by bidders. In practice, for example, it is important for a bidder to have a good estimate of N when bidding for a current contract. One approach, instigated by Friedman in 1956, is to make such an estimate by statistical analysis and modelling. Since then, however, finding a suitable model for N has been an enduring problem for researchers and, despite intensive research activity in the subsequent 30 years, little progress has been made, due principally to the absence of new ideas and perspectives. The debate is resumed by checking old assumptions, providing new evidence relating to concomitant variables and proposing a new model. In doing this and in order to ensure universality, a novel approach is developed and tested by using a unique set of 12 construction tender databases from four continents. This shows the new model provides a significant advancement on previous versions. Several new research questions are also posed and other approaches identified for future study.

Improving the estimation of probability of bidder participation in procurement auctions

Anticipating the number and identity of bidders has significant influence in many theoretical results of the auction itself and bidders' bidding behaviour. This is because when a bidder knows in advance which specific bidders are likely competitors, this knowledge gives a company a head start when setting the bid price. However, despite these competitive implications, most previous studies have focused almost entirely on forecasting the number of bidders and only a few authors have dealt with the identity dimension qualitatively. Using a case study with immediate real-life applications, this paper develops a method for estimating every potential bidder's probability of participating in a future auction as a function of the tender economic size removing the bias caused by the contract size opportunities distribution. This way, a bidder or auctioner will be able to estimate the likelihood of a specific group of key, previously identified bidders in a future tender.

Scoring rules and competitive behavior in best value construction auctions

This paper examines the extent to which engineers can influence the competitive behavior of bidders in Best Value or multi-attribute construction auctions, where both the (dollar) bid and technical non-price criteria are scored according to a scoring rule. From a sample of Spanish construction auctions with a variety of bid scoring rules, it is found that bidders are influenced by the auction rules in significant and predictable ways. The bid score weighting, bid scoring formula and abnormally low bid criterion are variables likely to influence the competitiveness of bidders in terms of both their aggressive/conservative bidding and concentration/dispersion of bids. Revealing the influence of the bid scoring rules and their magnitude on bidders’ competitive behavior opens the door for the engineer to condition bidder competitive behavior in such a way as to provide the balance needed to achieve the owner’s desired strategic outcomes.

Effective and strategic use of electronic reverse auctions

This paper reports the findings of an empirical study of Electronic Reverse Auctions (e-RAs). This study seeks to better understand the underlying and emerging issues in e-RAs to comprehend the implications of e-RAs on organizational procurement. The study contributes to practice and research by providing insight into emerging e-RA adoption issues, and by discussing strategies for improving e-RA processes, thus improving the effectiveness of e-RAs.

A winner determination algorithm for multi-unit combinatorial auctions with reserve prices

Combinatorial auction mechanisms have been used in many applications such as resource and task allocation, planning and time scheduling in multi-agent systems, in which the items to be allocated are complementary or substitutable. The winner determination in combinatorial auction itself is a NP-complete problem, and has attracted many attentions of researchers world wide. Some outstanding achievements have been made including CPLEX and CABOB algorithms on this topic. To our knowledge, the research into multi-unit combinatorial auctions with reserve prices considered is more or less ignored. To this end, we present a new algorithm for multi-unit combinatorial auctions with reserve prices, which is based on Sandholm's work. An efficient heuristic function is developed for the new algorithm. Experiments have been conducted. The experimental results show that auctioneer agent can find the optimal solution efficiently for a reasonable problem scale with our algorithm.

Optimal auctions with multidimensional types and the desirability of exclusion

Within the context of a single-unit, independent private values auction model, we show that if bidder types are multidimensional, then under the optimal auction exclusion of some bidder types will occur. A second contribution of the paper is methodological in nature. In particular, we identify conditions under which an auction model with multidimensional types can be reduced to a model with one dimensional types without loss of generality. Reduction results of this type have achieved the status of folklore in the mechanism design literature. Here, we provide a proof of the reduction result for auctions.

Abstract types and distributions in independent private value auctions

In this note, in an independent private values auction framework, I discuss the relationship between the set of types and the distribution of types. I show that any set of types, finite dimensional or not, can be extended to a larger set of types preserving incentive compatibility constraints, expected revenue and bidder’s expected utilities. Thus for example we may convexify a set of types making our model amenable to the large body of theory in economics and mathematics that relies on convexity assumptions. An interesting application of this extension procedure is to show that although revenue equivalence is not valid in general if the set of types is not convex these mechanism have underlying distinct allocation mechanism in the extension. Thus we recover in these situations the revenue equivalence.

Pure strategy equilibria of multidimensional and non-monotonic auctions

We give necessary and sufficient conditions for the existence of symmetric equilibrium without ties in interdependent values auctions, with multidimensional independent types and no monotonic assumptions. In this case, non-monotonic equilibria might happen. When the necessary and sufficient conditions are not satisfied, there are ties with positive probability. In such case, we are still able to prove the existence of pure strategy equilibrium with an all-pay auction tie-breaking rule. As a direct implication of these results, we obtain a generalization of the Revenue Equivalence Theorem. From the robustness of equilibrium existence for all-pay auctions in multidimensional setting, an interpretation of our results can give a new justification to the use of tournaments in practice.

The set of equilibria of first-price auctions

In this note I specify the class of functions that are equilibria of symmetric first-price auctions.

Three essays on hybrid auctions

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Hybrid Auctions II: Experimental Evidence

In this paper we report the results of an experiment designed to examine the properties of a hybrid auction - a Dutch-Vickrey auction, that combines a sealed bid …rst-price auction with a sealed bid second-price auction. This auction mechanism shares some important features with that used in the sale of the companies constituted through the partial division of the Telebras System - the government-owned Telecom holding in Brazil. We designed an experiment where individuals participate in a sequence of independent …rst-price auctions followed by a sequence of hybrid auctions. Several conclusions emerged from this experimental study. First, ex-post e¢ciency was achieved overwhelmingly by the hybrid auctions. Secondly, although overbidding (with respect to the risk-neutral Bayesian Nash equilibrium) was a regular feature of participants’ bidding behavior in the …rst-price auctions — as it is commonly reported in most experimental studies of …rst-price auctions, it was less frequent in the hybrid auctions. By calibrating the results to allow for risk-averse behavior we were able to account for a signi…cant part of the overbidding. Finally, we compared the revenue generated by the hybrid auction with that generated by a standard …rst-price sealed bid auction and the results were ambiguous.