The Number of Estimators: A Critical Decision for Marketing under Competitive Bidding

Abstract

The almost exclusive concern for deciding bid prices has obscured the importance to bidding firms of adjusting other marketing variables. Taking the capacity to prepare bids as one example of these variables, the authors develop a procedure for calculating an optimum number of estimators. A new method is used for computing probabilities of success in bidding, based on the past dispersion of competitor prices. The dispersion is interpreted as reflecting different assessments of the best way to carry out the work required and not, as commonly assumed, a combination of errors in estimating one “true cost” plus differences in competitors’ markups. Applied to a sample of firms, the procedure indicates that additional estimators would increase the expected profits for each firm.