Heterogeneous Approach to Modeling Contractors' Decision-to-Bid Strategies

Abstract

This research is based on the premise that there is heterogeneity in the population of contractors, i.e., that individual contractors exhibit different bidding behavior when confronted with a given set of bidding variables. Random-coefficients logistic model is used to explicitly measure the heterogeneity across contractors in terms of their (1) intrinsic bid/no-bid preferences and (2) responses to four bidding variables, i.e., number of bidders, market conditions, project type, and size. The binary bid/no-bid decisions were assumed to arise from a logistic model, but with the model parameters that varied between contractors. Data were gathered using a bidding experiment involving Hong Kong and Singapore contractors. The results show that there is significant heterogeneity across the contractors in which Hong Kong contractors can be clustered into four groups of identical (statistical) behavior in response to the four bidding variables, whereas in Singapore, there are only three groups as determined by the underlying heterogeneity distribution. This probabilistic classification of contractors has implications for contractors’ competitive strategies by targeting different groups of competitors toward maximum competitiveness.