Effects of Contractors’ Risk Attitude on Competition in Construction

Abstract

Competitive bidding is the major mechanism of competition. Bidding is risky because the actual cost of the job is unknown. Thus, the bid should be high enough to make a profit but low enough to win the bidding. The result of competition depends on the competitor’s risk-taking behaviors, which are affected by the organization’s risk attitudes. A contractor’s risk-taking is an essential element of the construction business. The current study explores the domain of competition at the aggregate market level. An evolutionary simulation model was developed to investigate the effects of risk attitude on a contractor’s success and on the market structure. The analysis accounts for different risk-taking behaviors in competition, different performances by contractors, corresponding organizational changes, and aggregate patterns in the form of the market structure. The study finds that risk attitude is a competitive characteristic of contractors. The results provide new insight on competition in the market place, and explanations are given for a contractor’s competitive success.