Bidding competitiveness: a comparative analysis of different bid auctions in Malaysia

Abstract

Purpose This research aims to contrast bid competitiveness with respect to the average bid auction (ABA) and the non-ABA bidding formats used by the Public Works Department (PWD) of Malaysia. Design/methodology/approach The research uses the ordinary least square regression and the Monte–Carlo simulation to point out significant predictors which affect the bid ratio and fitting probability distributions to bidding data, respectively. Findings This research shows that the bidding strategy adopted is dependent on the different formats used. In the ABA format, bidders are more likely to submit identical bid prices. In the non-ABA format, they bid according to the first-price auction strategy, which suggests greater variation between bid prices as a winning strategy and the reduction in the bid price to an estimated price ratio when more bidders bid. Practical implications Bidders lose more money when the distance between the project location and a firm’s operational office is greater. Best-fit probability density functions follow a gamma distribution for the ABA format and a Weibull distribution for the non-ABA format. The location and number of bidders affect bidders’ strategy to win. Originality/value This research presents empirical insights concerning the comparisons of different type of bidding formats practiced by PWD of Malaysia and its implications on the construction companies’ bidding behaviors especially when it comes to its economic consequences. The significant factors that affect the different auction mechanisms used can serve as a basis for improving the present methods employed by PWD and in other countries.