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.