Game Analysis of Bidding with Base Price in Construction Projects

In China, the bidding mechanism with base price is still widely used in construction projects nowadays. The aim of this paper, with help of game theory, is to analyze the bidding which has the base price and regards the inviter as one of the participants in construction projects. Firstly, a brief description of the bidding process based on game theory is presented. The paper then deeply analyzes bidding decisions according to two different circumstances: on condition that costs of bidders become common knowledge and on condition that bidders can only get incomplete information. It is found that, in the former circumstance, bidders need to consider costs and should make an estimate of the base price when there is no significant difference among their costs. However, in the latter circumstance, if bidders´ costs are estimated lower than the base price, they could decide the equilibrium bidding strategies themselves. Finally, the paper closes with recommendations and applicative conditions of the bidding strategies.