A dynamic competition model for construction contractors

Abstract

In construction, the issue of competition has been studied focusing on competitive bidding. The objective of most competitive bidding models is to find the optimum mark‐up to maximise the expected profit from a single firm's perspective. However, a firm's success depends on its long‐term interactions with the market and its competitors. To better understand competition in the market, there is a need to analyse competition from a dynamic market perspective. Building on previous models and relevant competition studies, a dynamic simulation model has been developed to provide an analytical framework for understanding dynamic competition. In this model, similar firms are equally exposed to demand uncertainties. Each applies its own policy, responding to market changes and to competitors' actions to optimise its market position. The firms' responses and their dynamic feedback are simulated and analysed. The results show how difficult it is for any firm to acquire a long‐term competitive advantage by means of bidding/marketing strategies—just as it is in the real world of price‐competitive contracting. Some considerations are presented for a single firm to develop a competitive strategy.