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Empirical Analysis of Cost Estimation Accuracy in Procurement Auctions

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Listed:
  • Timothy Fry
  • Robert Leitch
  • Patrick Philipoom
  • Yu Tian

Abstract

This paper explores the impact of better cost estimation accuracy for a firm that bids on projects. Specifically, we investigate the effect of cost estimation accuracy on firms’ ability to submit lower bids amounts and their likelihood of winning in a bidding environment. We analyze highway construction bidding data between year 2001 and 2009 from a state department of transportation. Our results suggest that firms with more accurate cost estimation are more likely to lower their bids amounts and thus are more likely to win more bids than firms that have less cost estimation accuracy. The findings help us better understand the process and effect of cost estimation accuracy in the bidding environment and provide practical implications.

Suggested Citation

  • Timothy Fry & Robert Leitch & Patrick Philipoom & Yu Tian, 2016. "Empirical Analysis of Cost Estimation Accuracy in Procurement Auctions," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(3), pages 1-1, February.
    • Handle: RePEc:ibn:ijbmjn:v:11:y:2016:i:3:p:1
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    References listed on IDEAS

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    1. Carolyn M. Callahan & E. Ann Gabriel, 1998. "The Differential Impact of Accurate Product Cost Information in Imperfectly Competitive Markets: A Theoretical and Empirical Investigation," Contemporary Accounting Research, John Wiley & Sons, vol. 15(4), pages 419-455, December.
    2. De Silva, Dakshina G. & Dunne, Timothy & Kankanamge, Anuruddha & Kosmopoulou, Georgia, 2008. "The impact of public information on bidding in highway procurement auctions," European Economic Review, Elsevier, vol. 52(1), pages 150-181, January.
    3. Douglas D. Davis & Charles A. Holt, 1992. "Introduction to Experimental Economics," Introductory Chapters, in: Experimental Economics, Princeton University Press.
    4. Mahendra Gupta & Ronald R. King, 1997. "An Experimental Investigation of the Effect of Cost Information and Feedback on Product Cost Decisions," Contemporary Accounting Research, John Wiley & Sons, vol. 14(1), pages 99-127, March.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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