Modelling individual contractors' bidding decisions in different competitive environments

Abstract

Contractor's bidding decisions are dependent on individual firm-specific characteristics. This research is based on the premise that there is heterogeneity in the population of contractors, i.e. that individual contractors exhibit different bidding behaviour when confronted with a given set of bidding variables. The aim of this thesis is to demonstrate through statistical modelling that, in terms of decision to bid (d2b) and mark-up decisions, individual Hong Kong and Singapore contractors are influenced, to vaiying degrees, by (1) market conditions, (2) number of bidders, (3) project type and (4) project size; and that heterogeneity exists both at macro- (i.e. contractors operating within different competitive environments) and micro-levels (i.e. contractors operating within the same competitive environment). Data were gathered using a designed bidding experiment. This approach allows for a greater control over the manipulation of the bidding variables than would have been gained using real data, and in doing so make more direct comparisons between the two competitive environments (i.e. Hong Kong and Singapore) possible. Individual-specific parameter estimates that relate the bidding variables to individual contractors' d2b and mark-up decisions were obtained using the random-coefficients logistic model and linear mixed-model, respectively. The results show that not only there is significant heterogeneity between the Hong Kong and Singapore contractors in terms of both their preferences (intercepts) and responses (slopes) to the bidding variables that affect their d2b and mark-up decisions, but also that the individual Hong Kong and Singapore contractors have different degrees of sensitivity towards the bidding variables (which is reflected in the varying individual-specific intercepts and slopes). Allowing for the heterogeneities, (i) all Hong Kong contractors' d2b decision was found to be significantly affected by market conditions with significance of the other three bidding variables varying across the HK contractors, whereas all four bidding variables are significant for Singapore contractors; and (ii) both Hong Kong and Singapore contractors' mark-up decision is significantly affected by market conditions, number of bidders and project size but not project type. As such, the results indicate that market conditions was the only significant bidding variable affecting contractors' d2b and mark-up decisions in both competitive environments.