File Download

There are no files associated with this item.

  Links for fulltext
     (May Require Subscription)
Supplementary

Article: Rational under-pricing in bidding strategy: A real options model

TitleRational under-pricing in bidding strategy: A real options model
Authors
KeywordsBidding strategy
Pricing
Real options
Tendering
Issue Date2006
PublisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/01446193.asp
Citation
Construction Management And Economics, 2006, v. 24 n. 5, p. 475-484 How to Cite?
AbstractUnder-pricing in construction tenders is a common phenomenon and is commonly explained by the need of cash flows and penetration strategy. However, these explanations involve profit cutting and therefore are not plausible in explaining a long-term persistent phenomenon of under-pricing. A real options model is proposed and using the binomial lattice method a real-life construction project tender was analysed to examine how management flexibility and uncertainty provide real options value. When uncertainties of cost items in a tender exist and choices are available to defer and switch modes of construction, then a valuable option is available to the bidders. It amounts to about 4% of the lump sum tendered in our case. The under-priced portion is the options value which the bidder is willing to pay for the flexibility and the uncertainty. These findings enable contractors to be more competitive and to estimate construction costs more accurately in devising their bid strategies. © 2006 Taylor & Francis.
Persistent Identifierhttp://hdl.handle.net/10722/168739
ISSN
2015 SCImago Journal Rankings: 0.967
References

 

DC FieldValueLanguage
dc.contributor.authorYiu, CYen_HK
dc.contributor.authorTam, CSen_HK
dc.date.accessioned2012-10-08T03:31:57Z-
dc.date.available2012-10-08T03:31:57Z-
dc.date.issued2006en_HK
dc.identifier.citationConstruction Management And Economics, 2006, v. 24 n. 5, p. 475-484en_HK
dc.identifier.issn0144-6193en_HK
dc.identifier.urihttp://hdl.handle.net/10722/168739-
dc.description.abstractUnder-pricing in construction tenders is a common phenomenon and is commonly explained by the need of cash flows and penetration strategy. However, these explanations involve profit cutting and therefore are not plausible in explaining a long-term persistent phenomenon of under-pricing. A real options model is proposed and using the binomial lattice method a real-life construction project tender was analysed to examine how management flexibility and uncertainty provide real options value. When uncertainties of cost items in a tender exist and choices are available to defer and switch modes of construction, then a valuable option is available to the bidders. It amounts to about 4% of the lump sum tendered in our case. The under-priced portion is the options value which the bidder is willing to pay for the flexibility and the uncertainty. These findings enable contractors to be more competitive and to estimate construction costs more accurately in devising their bid strategies. © 2006 Taylor & Francis.en_HK
dc.languageengen_US
dc.publisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/01446193.aspen_HK
dc.relation.ispartofConstruction Management and Economicsen_HK
dc.subjectBidding strategyen_HK
dc.subjectPricingen_HK
dc.subjectReal optionsen_HK
dc.subjectTenderingen_HK
dc.titleRational under-pricing in bidding strategy: A real options modelen_HK
dc.typeArticleen_HK
dc.identifier.emailYiu, CY: ecyyiu@hkucc.hku.hken_HK
dc.identifier.authorityYiu, CY=rp01035en_HK
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.doi10.1080/01446190600601560en_HK
dc.identifier.scopuseid_2-s2.0-33745099013en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-33745099013&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume24en_HK
dc.identifier.issue5en_HK
dc.identifier.spage475en_HK
dc.identifier.epage484en_HK
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.scopusauthoridYiu, CY=9248825800en_HK
dc.identifier.scopusauthoridTam, CS=7201444744en_HK
dc.identifier.citeulike689286-

Export via OAI-PMH Interface in XML Formats


OR


Export to Other Non-XML Formats