European Financial and Accounting Journal 2015, 10(1):49-62 | DOI: 10.18267/j.efaj.137

Price Determination in Public Procurement: A Game Theory Approach

Martin Schmidt
Ing. Martin Schmidt - Faculty of Economics and Administration, Masaryk University; <m.schmidt@email.cz>.

The article examines mechanism of bid price determination in public procurement by individual tenderers. A game theory approach is used to analyse this process. Firstly, a simple model with two firms illustrates the influence of expected opponent's decision in bid price setting. Assumptions are released subsequently and a game theory based model describes price determination under assumption of expected profit maximization. It is shown that the bid price depends on the costs associated with the performance of the contract and the expected number of bidders. The relationship between the amount of the bid price and the number of bids is also confirmed on the findings of several empirical studies that are quoted.

Keywords: Award procedure, Bid price, Game theory, Public procurement
JEL classification: H57

Published: March 1, 2015  Show citation

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Schmidt, M. (2015). Price Determination in Public Procurement: A Game Theory Approach. European Financial and Accounting Journal, 10(1), 49-62. doi: 10.18267/j.efaj.137
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