IDEAS home Printed from https://ideas.repec.org/a/taf/conmgt/v24y2006i7p773-783.html
   My bibliography  Save this article

Construction price formation: full-cost pricing or neoclassical microeconomic theory?

Author

Listed:
  • Martin Skitmore
  • Goran Runeson
  • Xinling Chang

Abstract

Neo-classical microeconomic theory has been suggested to offer (1) an appropriate analytical tool for construction price determination while, at the same time, (2) full-cost pricing is most commonly accepted pricing policy of construction firms. Paradoxically, however, both are mutually exclusive theories. Only one, if any, can be correct. This paper examines both (1) and (2) by analysis of the evidence available in literature and concludes in favour of (1). It is only in disequilibrium, however, that the differences in behaviour can be clearly observed. In equilibrium, the difference between the two theories from a practical point of view is not very substantial. In addition, the endemic nature of uncertainty in the industry in general makes the task of estimating costs and prices difficult in practice. Therefore, although neoclassical microeconomic theory provides a useful means of analysis, it offers little for the practice of pricing, which is much more closely related to the marketing discipline than economics.

Suggested Citation

  • Martin Skitmore & Goran Runeson & Xinling Chang, 2006. "Construction price formation: full-cost pricing or neoclassical microeconomic theory?," Construction Management and Economics, Taylor & Francis Journals, vol. 24(7), pages 773-783.
    • Handle: RePEc:taf:conmgt:v:24:y:2006:i:7:p:773-783
    DOI: 10.1080/01446190500434849
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/01446190500434849
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/01446190500434849?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Goran Runeson & Martin Skitmore, 1999. "Tendering theory revisited," Construction Management and Economics, Taylor & Francis Journals, vol. 17(3), pages 285-296.
    2. Graham Winch, 2001. "Governing the project process: a conceptual framework," Construction Management and Economics, Taylor & Francis Journals, vol. 19(8), pages 799-808.
    3. Michael H. Rothkopf, 1980. "On Multiplicative Bidding Strategies," Operations Research, INFORMS, vol. 28(3-part-i), pages 570-575, June.
    4. Hoffman, K. Douglas & Turley, L. W. & Kelley, Scott W., 2002. "Pricing retail services," Journal of Business Research, Elsevier, vol. 55(12), pages 1015-1023, December.
    5. Lawrence Friedman, 1956. "A Competitive-Bidding Strategy," Operations Research, INFORMS, vol. 4(1), pages 104-112, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ma, Le & Liu, Henry J. & Edwards, David J. & Sing, Michael C.P., 2021. "Housing price dynamics on residential construction: A case study of the Australian property sector," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 525-532.
    2. Daisy Yeung & Martin Skitmore, 2012. "A method for systematically pooling data in very early stage construction price forecasting," Construction Management and Economics, Taylor & Francis Journals, vol. 30(11), pages 929-939, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Qiao, Yu & Labi, Samuel & Fricker, Jon D., 2021. "Does highway project bundling policy affect bidding competition? Insights from a mixed ordinal logistic model," Transportation Research Part A: Policy and Practice, Elsevier, vol. 145(C), pages 228-242.
    2. Mohammed Fadhil Dulaimi & Hon Guo Shan, 2002. "The factors influencing bid mark-up decisions of large- and medium-size contractors in Singapore," Construction Management and Economics, Taylor & Francis Journals, vol. 20(7), pages 601-610.
    3. Ronald M. Harstad, 2007. "Does a Seller Really Want Another Bidder?," Working Papers 0711, Department of Economics, University of Missouri.
    4. Ballesteros-Pérez, Pablo & del Campo-Hitschfeld, Maria Luisa & Mora-Melià, Daniel & Domínguez, David, 2015. "Modeling bidding competitiveness and position performance in multi-attribute construction auctions," Operations Research Perspectives, Elsevier, vol. 2(C), pages 24-35.
    5. Chen, Xiaoyan & Locatelli, Giorgio & Zhang, Xinyue & Gong, Yunhao & He, Qinghua, 2022. "Firm and project innovation outcome measures in infrastructure megaprojects: An interpretive structural modelling approach," Technovation, Elsevier, vol. 109(C).
    6. Natarajan, Thamaraiselvan & Balasubramanian, Senthil Arasu & Kasilingam, Dharun Lingam, 2017. "Understanding the intention to use mobile shopping applications and its influence on price sensitivity," Journal of Retailing and Consumer Services, Elsevier, vol. 37(C), pages 8-22.
    7. Swider, Derk J. & Weber, Christoph, 2007. "Bidding under price uncertainty in multi-unit pay-as-bid procurement auctions for power systems reserve," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1297-1308, September.
    8. Nuno Oliveira & Fabrice Lumineau, 2017. "How Coordination Trajectories Influence the Performance of Interorganizational Project Networks," Organization Science, INFORMS, vol. 28(6), pages 1029-1060, December.
    9. Alan Mehlenbacher, 2007. "Multiagent System Platform for Auction Simulations," Department Discussion Papers 0706, Department of Economics, University of Victoria.
    10. Skitmore, Martin, 2002. "Identifying non-competitive bids in construction contract auctions," Omega, Elsevier, vol. 30(6), pages 443-449, December.
    11. Fanzeres, Bruno & Ahmed, Shabbir & Street, Alexandre, 2019. "Robust strategic bidding in auction-based markets," European Journal of Operational Research, Elsevier, vol. 272(3), pages 1158-1172.
    12. Yuichi Takano & Nobuaki Ishii & Masaaki Muraki, 2017. "Multi-period resource allocation for estimating project costs in competitive bidding," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(2), pages 303-323, June.
    13. Max H. Bazerman & William F. Samuelson, 1983. "I Won the Auction But Don't Want the Prize," Journal of Conflict Resolution, Peace Science Society (International), vol. 27(4), pages 618-634, December.
    14. Vukina, Tomislav & Zheng, Xiaoyong & Marra, Michele & Levy, Armando, 2008. "Do farmers value the environment? Evidence from a conservation reserve program auction," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1323-1332, November.
    15. Cova, Bernard & Mazet, Florence & Salle, Robert, 1996. "Milieu as a pertinent unit of analysis in project marketing," International Business Review, Elsevier, vol. 5(6), pages 647-664, December.
    16. Paulo Fagandini & Ingemar Dierickx, 2023. "Computing Profit-Maximizing Bid Shading Factors in First-Price Sealed-Bid Auctions," Computational Economics, Springer;Society for Computational Economics, vol. 61(3), pages 1009-1035, March.
    17. Francisco Brahm & Jorge Tarzijan, 2016. "Relational Contracts and Collaboration in the Supply Chain: Impact of Expected Future Business Volume on the Make-or-Buy Decision," Journal of Supply Chain Management, Institute for Supply Management, vol. 52(3), pages 48-67, July.
    18. Pickl, Matthias & Wirl, Franz, 2011. "Auction design for gas pipeline transportation capacity--The case of Nabucco and its open season," Energy Policy, Elsevier, vol. 39(4), pages 2143-2151, April.
    19. Sameer Mathur & Prem Prakash Dewani, 2016. "Influence of cultural heritage on hotel prices, occupancy and profit," Tourism Economics, , vol. 22(5), pages 1014-1032, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:conmgt:v:24:y:2006:i:7:p:773-783. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RCME20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.