Bidding is an offer (often competitive) to set a price tag by an individual or business for a product or serviceor a demand that something be done.[1] Bidding is used to determine the cost or value of something.
Bidding can be performed by a person under influence of a product or service based on the context of the situation. In the context of auctions, financial transactions on international markets, 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. in Business and Law school students actively bid for high demand elective courses that have a maximum seat capacity though a course bidding process using pre allocated bidding points or e-bidding currency on course bidding systems.[2] 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 favoured platform for providing bidding facilities; it is a natural way of determining the price of a good 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.
Course bidding
Academic bidding is an online process that allows a student to select seats in courses or electives that have a seat availability constraint and a maximum cap enforced for each elective course. [3] The process of academic elective course bidding is extensively followed at some of the Top 100 Ranking business schools and law schools. Wherein students receive bid points (mostly uniformly or bid points are calculated on the basis of their CGPA), students may utilize these bid points to select courses and place winning bids on an online course bidding software platform during the bidding activities.
The process of bidding varies between different educational institutions, but overall the idea of winning places through an auction remains the same.
There are two main types of academic bidding
In a Closed Course bidding process students can allocate a calculated number of bidding points based on insights from historical winning bid averages. The student can then know whether his/her bid is successful only after the bidding round is complete.
The allocation of available bid points in closed bidding points thus may not be very efficient. But it allows students to place bids and participate in a bid process that has an extended time duration of a couple of hours to days.
In an Open Course bidding process, students are given insights about the exact winning bid required to win a seat at that particular moment in real-time. So they have the option to change/adjust bid points whenever necessary before a bidding round duration is complete. Hence students would be able to adjust winning bid points across high-demand courses and low-demand courses and successfully win a portfolio of courses. The bidding round durations in this case can be shorter durations from 15 minutes to 45 minutes.
The typical process sequence of conducting the course bidding activity using course bidding software includes the following rounds:
Confirmation Round-1(Informs students on successful bids and of the winning courses )
Course Bidding Round-2 and Confirmation Round-2 (Allows students to bid for elective seats left after the bidding round - 1 and confirmation (Result Declaration) round round - 1 )
Waitlist Generation Round (Allows students to be on the waitlist for high-demand elective courses that they haven’t won using their leftover bids in Bidding round 1 and 2)
Add Drop Rounds[4] (Allows performing final changes to students winning list, the student may drop some elective courses they won, the seats available in high demand courses may be given to students in waitlist order for that high demand course)
Note the Waitlist Generation might use a closed bidding process to rank students in the waitlist. The Add-Drop rounds allow efficient allocation of seats left after a bidding process.
Online bidding
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
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 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
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.[5]
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.
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.
Preferred provider: Relational model that is suited for spend categories with an increased opportunity for meeting business objectives, therefore allowing to focus on strategy.
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.
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.
Shared services model: Suited for large organizations with multiple business locations and units where there is opportunity to standardize and consolidate workscope.
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.
Bid construction problem
The Bid Construction Problem (BCP) or the Bid Generation Problem (BGP) is a NP-Hard combinatorial optimization problem addressed by the bidder in order to determine items it is interested to bid on and the prices asked for acquiring these items. In transportation services procurement auctions, the BCP is addressed by the carrier to determine the set of profitable auctioned transportation contracts to bid on and their bidding prices.[6] We distinguish two forms of the BCP depending in the nature of its parameters: deterministic vs stochastic.
Bidding off the wall
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
Joint bidding,[7] 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 is a form of collusion among firms intended 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.[8]
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 are watched. The markers divide 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.
Related Research Articles
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory.
A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant accepts the price, or it reaches a predetermined reserve price. This type of price auction is most commonly used for goods that are required to be sold quickly such as flowers, fresh produce, or tobacco. A Dutch auction has also been called a clock auction or open-outcry descending-price auction. This type of auction shows the advantage of speed since a sale never requires more than one bid. It is strategically similar to a first-price sealed-bid auction.
An online auction is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with different bidding and selling rules.
A Vickrey auction or sealed-bid second-price auction (SBSPA) is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid. This type of auction is strategically similar to an English auction and gives bidders an incentive to bid their true value. The auction was first described academically by Columbia University professor William Vickrey in 1961 though it had been used by stamp collectors since 1893. In 1797 Johann Wolfgang von Goethe sold a manuscript using a sealed-bid, second-price auction.
An English auction is an open-outcry ascending dynamic auction. It proceeds as follows.
Bid rigging is a fraudulent scheme in a procurement action which enables companies to submit non-competitive bids. It can be performed by corrupt officials, by firms in an orchestrated act of collusion, or by officials and firms acting together. This form of collusion is illegal in most countries. It is a form of price fixing and market allocation, often practiced where contracts are determined by a call for bids, for example in the case of government construction contracts. The typical objective of bid rigging is to enable the "winning" party to obtain contracts at uncompetitive prices. The other parties are compensated in various ways, for example, by cash payments, or by being designated to be the "winning" bidder on other contracts, or by an arrangement where some parts of the successful bidder's contract will be subcontracted to them. In this way, they "share the spoils" among themselves. Bid rigging almost always results in economic harm to the agency which is seeking the bids, and to the public, who ultimately bear the costs as taxpayers or consumers.
A spectrum auction is a process whereby a government uses an auction system to sell the rights to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. Depending on the specific auction format used, a spectrum auction can last from a single day to several months from the opening bid to the final winning bid. With a well-designed auction, resources are allocated efficiently to the parties that value them the most, the government securing revenue in the process. Spectrum auctions are a step toward market-based spectrum management and privatization of public airwaves, and are a way for governments to allocate scarce resources.
A bidding fee auction, also called a penny auction, is a type of all-pay auction in which all participants must pay a non-refundable fee to place each small incremental bid. The auction is extended each time a new bid is placed, typically by 10 to 20 seconds. Once time expires without a new bid being placed, the last bidder wins the auction and pays the amount of that bid. The auctioneer profits from both the fees charged to place bids and the payment for the winning bid; these combined revenues frequently total more than the value of the item being sold. Empirical evidence suggests that revenues from these auctions exceeds theoretical predictions for rational agents. This has been credited to the sunk cost fallacy. Such auctions are typically held over the Internet, rather than in person.
Auction sniping is the practice, in a timed online auction, of placing a bid likely to exceed the current highest bid as late as possible—usually seconds before the end of the auction—giving other bidders no time to outbid the sniper. This can be done either manually or by software on the bidder's computer, or by an online sniping service.
Auction theory is a branch of applied economics that deals with how bidders act in auctions and researches how the features of auctions incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The confluence of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues that can lead to market failure. The design of these rulesets encourages optimal bidding strategies in a variety of informational settings. The 2020 Nobel Prize for Economics was awarded to Paul R. Milgrom and Robert B. Wilson "for improvements to auction theory and inventions of new auction formats."
A first-price sealed-bid auction (FPSBA) is a common type of auction. It is also known as blind auction. In this type of auction, all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant. The highest bidder pays the price that was submitted.
A combinatorial auction is a type of smart market in which participants can place bids on combinations of discrete heterogeneous items, or “packages”, rather than individual items or continuous quantities. These packages can be also called lots and the whole auction a multi-lot auction. Combinatorial auctions are applicable when bidders have non-additive valuations on bundles of items, that is, they value combinations of items more or less than the sum of the valuations of individual elements of the combination.
A request for quotation (RfQ) is a business process in which a company or public entity requests a quote from a supplier for the purchase of specific products or services. RfQ generally means the same thing as Call for bids (CfB) and Invitation for bid (IfB).
The United States 700 MHz FCC wireless spectrum auction, officially known as Auction 73, was started by the Federal Communications Commission (FCC) on January 24, 2008 for the rights to operate the 700 MHz radio frequency band in the United States. The details of process were the subject of debate among several telecommunications companies, including Verizon Wireless, AT&T Mobility, as well as the Internet company Google. Much of the debate swirled around the open access requirements set down by the Second Report and Order released by the FCC determining the process and rules for the auction. All bidding was required by law to commence by January 28.
Auction software is application software, that can either be deployed on a desktop, on a web server or as a smart contract on a blockchain virtual machine. This software is used by auctioneers and participants of online auctions such as eBay. Smart contracts replace an auctioneer's server, if the auctioneer is not trusted.
Government procurement in Russia relates to the public procurement in Russia by all governmental, regional and local authorities. The government procurement in Russia represents a big segment of the budgetary expenses. The volume of government purchases makes about 25 trillion rubles in 2015 and 30 trillion rubles in 2016. The government purchases system is constantly modernized due to changes in legislation, technical components and information.
A smart market is a periodic auction which is cleared by the operations research technique of mathematical optimization, such as linear programming. The smart market is operated by a market manager. Trades are not bilateral, between pairs of people, but rather to or from a pool. A smart market can assist market operation when trades would otherwise have significant transaction costs or externalities.
A reverse auction is a type of auction in which the traditional roles of buyer and seller are reversed. Thus, there is one buyer and many potential sellers. In an ordinary auction also known as a forward auction, buyers compete to obtain goods or services by offering increasingly higher prices. In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.
PropertyRoom.com is a live online auction website that sells confiscated police goods and approved third party merchant merchandise to the highest winning bidder. PropertyRoom.com is the largest online police auction website in the United States.
An ‘‘‘electronic bidding system ‘‘‘ is an electronic bidding event according to defined negotiation rules (eAgreement). A buyer and two or more suppliers take part in this online event.
↑ Keith, Bonnie; etal. (2016). Strategic Sourcing in the New Economy: Harnessing the Potential of Sourcing Business Models for Modern Procurement (1sted.). New York: Palgrave Macmillan. ISBN978-1137552181.
Hammami, Farouk; Rekik, Monia; Coelho, Leandro C. (2019). "Exact and heuristic solution approaches for the bid construction problem in transportation procurement auctions with a heterogeneous fleet". Transportation Research Part E: Logistics and Transportation Review. 127: 150–177. doi:10.1016/j.tre.2019.05.009. S2CID182223089.
↑ 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.
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" ISBN978-1137552181
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
Hammami, Farouk; Rekik, Monia; Coelho, Leandro C. (2019). "Exact and heuristic solution approaches for the bid construction problem in transportation procurement auctions with a heterogeneous fleet". Transportation Research Part E: Logistics and Transportation Review. 127: 150–177. doi:10.1016/j.tre.2019.05.009. S2CID182223089. Bidding for transportation services procurement.
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