Bidding

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Bidding is an offer (often competitive) to set a price by an individual or business for a product or service or a demand that something be done.[1] Bidding is used to determine the cost or value of something.

Bidding can be performed by a "buyer" or "supplier" of a product or service based on the context of the situation. In the context of auctions, stock exchange, or real estate the price offer a business or individual is willing to pay is called a bid. In the context of corporate or government procurement initiatives, the price offer a business or individual is willing to sell is also called a bid. The term "bidding" is also used when placing a bet in card games. Bidding is used by various economic niches for determining the demand and hence the value of the article or property, in today's world of advanced technology, the Internet is a favored platform for providing bidding facilities; it is a natural way of determining the price of a commodity in a free market economy.

Many similar terms that may or may not use the similar concept have been evolved in the recent past in connection to bidding, such as reverse auction, social bidding, or many other game-class ideas that promote themselves as bidding. Bidding is also sometimes used as ethical gambling in which the prize money is not determined solely by luck but also by the total demand that the prize has attracted towards itself.

Topics[edit]

Online bidding[edit]

Bidding performs in two ways online: unique bidding and dynamic bidding.

Unique bidding: In this case bidders place bids that are global unique bids which means that for the bid to be eligible, no other person can place the bid in this amount and the biddings are usually secret. There are two variants of this type of bidding : highest unique bidding and lowest unique bidding.

Dynamic bidding: This is a type of bidding where one user can set his bid for the product. Whether the user is present or not for the bidding, the bidding will automatically increase up to his defined amount. After reaching his bid value, the bidding stops from his side.

Timed bidding[edit]

Timed bidding auctions allow users to bid at any time during a defined time period, simply by entering a maximum bid. Timed auctions take place without an auctioneer calling the sale, so bidders don't have to wait for a lot to be called. This means that a bidder doesn't have to keep his eye on a live auction at a specific time.

By entering a maximum bid, a user is indicating the highest he is willing to pay for a lot. An automated bidding service will bid on his behalf to ensure that he meets the reserve price, or that he always stays in the lead, up to his maximum bid. If someone else has placed a bid that is higher than the maximum bid, the bidder will be notified, allowing he to change the maximum bid and stay in the auction. At the end of the auction, whoever's maximum bid is the most wins the lot.

Live bidding is a traditional room-based auction. These can be broadcast via a website where viewers can hear live audio and see live video feeds. The idea is that a bidder places their bid over the Internet in real-time. Effectively it is like being at a real auction, in the comfort of the home. Timed bidding, on the other hand, is a separate auction altogether, which allows bidders to participate without the need to see or hear the live event. It is another way of bidding, that is more convenient to the bidder.

Bidding in procurement initiatives[edit]

Most large organizations have formal procurement organizations that acquire goods and services on their behalf. Procurement is a component of the broader concept of sourcing and acquisition. Procurement professionals increasingly realize that their make-buy supplier decisions fall along a continuum, from buying simple transactions to buying more complex and strategic goods and services (e.g. large scale outsourcing efforts). It is important for procurement professionals to use the appropriate sourcing model. There are seven models along the sourcing/bidding continuum: basic provider, approved provider, preferred provider, performance-based/managed services model, vested business model, shared services model and equity partnerships.[2]

  1. Basic provider: This transactional model is generally the best for low-value items with abundant supply and little complexity. The primary purpose is to gain access to goods at the lowest cost.
  2. Approved provider: Second case of transactional model in which goods and services are provided by prequalified suppliers who meet certain criteria. To reach this status, suppliers often offer some advantages. Companies tend to shift to this model from the basic provider model when they seek for cooperation with fewer suppliers.
  3. Preferred provider: Relational model that is suited for spend categories with an increased opportunity for meeting business objectives, therefore allowing to focus on strategy.
  4. Performance-based/managed services model: These models combine a relational model with an output-based economic model. The widest usage is in the aerospace and defense industries.
  5. Vested business model: A business model and mindset for creating highly collaborative business relationships. It is used to ensure getting the best absolute value through a transparent relationship with the possibilities for innovation.
  6. Shared services model: Suited for large organizations with multiple business locations and units where there is opportunity to standardize and consolidate workscope.
  7. Equity partnerships: This is a very formal contract approach due to the ownership structure. Setting up an equity partnership can be a very complicated and costly process.

Bidding off the wall[edit]

Bidding off the wall, or taking bids from the chandelier, as it is sometime known, is where the auctioneer bids on behalf of the vendor.

This is allowed by law in some countries and states, and the auctioneer is allowed to bid on behalf of the vendor up to, but not including, the reserve price. In some cases, this may be extremely helpful for bidders because the reserve needs to be met.

For an example, suppose a property is coming up for auction and there is only one person interested in bidding for it in the room. The reserve has been set at $100,000, and this bidder is happy to buy it at $120,000. The bidding starts at $80,000. Without the auctioneer bidding on behalf of the vendor, it would never progress beyond that amount. However, because the auctioneer will take bids or generate bids of $85,000, the bidder then goes to $90,000 etc. If the bidder wants to, he may bid $100,000 and secure the property on the reserve price.

The result is that the vendor has sold the property at reserve and the purchaser has bought the property on the reserve price at less than he was prepared to pay. Without the auctioneer taking bids off the wall, this would never have happened.

All professional auctioneers do this with all types of auctions, including motor vehicles. As long as they are pushing it up towards the reserve price, then it is not an issue. If you don't want to bid at the price the auctioneer is asking, don't bid. If the goods don't meet the reserve and no-one but you wants to buy, then if the auctioneer didn't bid off the wall to meet the required price, the goods wouldn't be sold anyway.

Joint bidding[edit]

Joint bidding,[3] appearing in procurement tendering and auctions, is the practice of two or more similar firms submitting a single bid. Bidding consortia among potential competitors are the most common in public and private procurement and were used by some oil companies in U.S. auctions for offshore leases. Bidding consortia allow firms to get resources needed to formulate a valid bid. They may share information about the likely value of the contract based on forecasts or surveys, jointly bear fixed costs, or combine production facilities. In Europe, the regulation of joint bidding in procurement varies across countries. Mergers and joint ventures typically lead to a fewer number of competitors, thus resulting in higher prices for consumers.

Bid rigging[edit]

Bid rigging [4] is a conspiration of groups of firms in order to raise prices or lower the quality of goods or services offered in public tenders. In spite of it being illegal, this practice costs governments and taxpayers large sums of money. That is why the fight against bid rigging is a top priority in many countries. To detect bid rigging, national competition authorities rely on leniency programs. To reduce the dependency on the external sources, COMCO (Swiss Competition Commission) decided to initiate a long-term project in 2008 to develop a statistical screening tool.

This product was supposed to have the following properties: modest data requirements, simplicity, flexibility, reliable results. There are two possible approaches in general: structural methods for the empirical identification of markets prone to collusion and behavioral methods to analyze the concrete behavior of firms in specific markets. In the case of behavioral methods, a number of statistical markers is watched. The markers dividie into price- and quantity-related markers.

The price-related markers use the information in the structure of the winning and losing bids to identify suspect bidding behavior. The quantity-related markers are meant to identify collusive behavior from developments in the market shares that seem not to be compatible with competitive markets. An example of a price-related marker is so called variance screen. Empirical papers show evidence that the price variability is lower in a collusive environment.

Markers are relatively easily applied even when only little information is known. On the other hand there exist more complicated econometric detection methods which require firm-specific data.

Notes[edit]

  1. ^ "Definition of bidding in English". Oxford. Retrieved 29 March 2014.
  2. ^ Keith, Bonnie; et al. (2016). Strategic Sourcing in the New Economy: Harnessing the Potential of Sourcing Business Models for Modern Procurement (1st ed.). NewYork: Palgrave Macmillan. ISBN 978-1137552181.
  3. ^ Albano, Gian L. (15 September 2008). "REGULATING JOINT BIDDING IN PUBLIC PROCUREMENT". Journal of Competition Law & Economics. 5 (2): 335–360. doi:10.1093/joclec/nhn022.
  4. ^ Imhof, David (25 July 2018). "SCREENING FOR BID RIGGING—DOES IT WORK?". Journal of Competition Law & Economics. 14 (2): 235–261. doi:10.1093/joclec/nhy006.

References[edit]

  • Rapoport, Amnon, Otsubo, Hironori, Kim, Bora and Stein, William E. (2007). "Unique bid auctions: Equilibrium solutions and experimental evidence". Retrieved 2010-01-29.
  • Bonnie Keith, Kate Vitasek, Karl Manrodt, Jeanne Kling.(2016)."Strategic Sourcing in the New Economy: Harnessing the Potential of Sourcing Business Models for Modern Procurement" ISBN 978-1137552181
  • Albano, G.L. (2008). Journal of Competition Law & Economics, Volume 5, Issue 2, June 2009, Pages 335–360
  • David Imhof, Yavuz Karagök, Samuel Rutz (2018). Journal of Competition Law & Economics, Volume 14, Issue 2, June 2018, Pages 235–261