Zero Sum Games
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The central issue is how bidding is affected if one of the bidders is allowed to match rather
than bid himself. Numerical methods might be needed in general, but there is one special
case which is easy to analyse.
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Developer (D) is developing a power plant and wishes to seek competitive
bids for fuel supply. There are five (5) qualified bidders, Companies 1 - 5,
all who are capable of supplying fuel. D will be required to [View full text and thread]
|01/17/2000 01:23 PM by name withheld; Some more details of the problem|
What happens in auctions depends both on the circumstances of the auction and the rules. One
possibility is that the bidders have private information relevant to the other bidders - for
example some inside information about future [View full text and thread]
The background is that our company has offered to provide development funding to X in exchange for the right to match the best offer to supply them with fuel. Assume the development funding is adequate value for the option received. Then X will solicit competitive bids for fuel. We will have the right to negotiate a supply contract based on the most favorable terms received as a result of the competitive process. In addition to us, there are about 4 other potential suppliers.
|01/15/2000 10:41 AM by name withheld; What happens when one bidder has an advantage?|
The issue is the impact of the right to match on the bidding strategies of the potential bidders. Company X believes that the option would reduce the incentive of the bidders to compete, and that bids would be less aggressive, knowing that any offer to supply could be taken by us. My belief is that the process should be unaffected or potentially more competitive. If a bidder submits a bad offer, that offer is more likely to be seen by us as profitable, and so they are more likely to lose the contract to us. Therefore, a serious bidder will have incentive to only submit a bid that is at or near its indifference point. If it wins the contract, the profitability will be acceptable, but if it loses the contract, that profitability was at the margin.
I assume only one of these views is accurate. Can you please direct me to materials that would allow me to understand the current thinking in such a situation?