Optimizing Duration of Competitive Bidding: the Case of Ukrainian Public Procurement

The paper considers the impact of the duration of competitive bidding on the organizer's payoff.  Extending the duration of the bidding process has a two-fold effect on its results.  On the one hand, it attracts a larger number of bidders, and competition between them leads to the better price for the auctioneer.  On the other hand, such prolongation delays the receipt of money or necessary supplies, and time has value in itself.  These two conflicting factors suggest that there must be an optimal duration of the bidding process.  We propose a model that combines these considerations with the formal game-theoretic model of bidder's behavior.  The procedure for determining the optimal duration of bidding has been developed using the institutional context of Ukrainian public procurement tenders.  Derived optimality conditions have an intuitive economic interpretation and can be used either with an empirical distribution of bidders' reservation prices or with its analytical representation.  Practical implementation of the proposed algorithm may improve the economic performance of the auctioneer, which may be particularly important for the public sector of the economy.