THE OPTIMUM MARKUP WHEN BIDDING WITH UNCERTAIN COSTS

The use of Friedman's approach to bidding is examined in situations where the competitors all bid with the same markup and the same distribution of uncertainty in the cost estimate. The optimum markup is found for different distributions of the cost estimates, for different versions of the expected profit and for different formulae for the probability of winning. It is shown that the different distributions and different methods have significant effects in some, but not all cases. The Friedman method is reliable in some instances but may be harmful in others. © 1990.