An Investigation of Two-Person Competitive Bidding Strategies

In a competitive economy many a firm finds itself caught in the middle of a cost-price squeeze. One approach to this problem is to reduce costs as much as possible. Another approach is to obtain the best prices for its products. This paper is concerned with the competitive aspects of bidding or pricing policies. The best course of action for a person in competition depends on what he expects his competitors to do, and vice versa-interdependent decision. The analysis and examples illustrate the importance of knowing his own and, as much as it is legally permissible, to know of his competitor's relative costs, and also his competitors' bidding or pricing policies. The analysis in this paper is centered on a two-person deterministic competitive bidding game, where in practice each person has a nonlinear incremental cost matrix.