Dynamic competition model for construction contractors
Abstract
Dynamic competition in an industry has been an interest of practitioners and researchers because of the expectation that sound understanding of competition in a dynamic way enables a firm to compete better. This dynamic approach considers a firm as an entity in a dynamic system, in which every entity is a profit optimizer responding to market conditions as well as its competitors' actions. In construction, the issue of competition has been focused on competitive bidding, which is a critical mechanism for a contractor to obtain jobs and to generate profits by performing them. Since Friedman's competitive bidding model (1956), various approaches have been developed to improve earlier models. The objective of most models is to find the optimum markup to maximize the expected profit from a firm's perspective. However, to better understand competition in the market, there is the need to analyze this issue from a market perspective. The market perspective provides the consideration about market equilibrium. From previous models and other competition studies, critical missing concepts were identified. In order to find efficient policies that enable a firm to outperform its competitors and to provide an analytical framework of understanding dynamic competition, a system dynamics model has been developed based on the identified concepts. In this model, there are three managerial areas in which a contractor makes policy: 1) markup; 2) marketing; and 3) capacity. Each firm's backlog level is considered as a basic input to its policy making. N firms are equally exposed to demand uncertainty. As an optimizer, each firm applies its policies responding to changes in the market to keep its operations efficient. Firms' responses to market changes are simulated and analyzed and their dynamic feedback was studied. Test results show how difficult it is for a firm to obtain a competitive advantage competing with its competitors due to their reactions. This is different from the previous models that determine a better policy based on assumed static condition and ignorance of competitors' reactions. The test results also show the possibility that one firm can outperform its competitors by using different policies based on accurate market forecasts.
Description
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Includes bibliographical references (leaves 73-75).
Issued also on microfiche from Lange Micrographics.
Includes bibliographical references (leaves 73-75).
Issued also on microfiche from Lange Micrographics.
Keywords
civil engineering., Major civil engineering.