Topics in Economic Analysis – Auction Theory and the Construction Industry.

Mark: 1:1

A team essay into the tendering process in the construction industry attempts to look at how the first-price sealed-bid auction presents a multitude of interactions between employers, contractors and subcontractors. The aim of the paper is to state the underlying strategic elements behind a first-price sealed-bid auction in the context of the construction industry.

While section one outlines the strategic situation we ultimately learn that there are various underlying consequences of this auction type. Section two outlines how winners of auctions are often subject to “a winner’s curse” carrying out a project at such a price to make it unprofitable. Section three explores the opportunities for corruption and repeated interaction as elements of the auction design. Section four highlights the issue of ‘bid shopping’ as a consequence of sequential bidding mechanisms.