Bid-spread

Analysis of the difference between the lowest and second lowest bids, or bid-spread, in a ‘lowest wins’ auction is of possible value in strategic bidding; providing an indication of mistakes in bids; determining a justifiable amount of bid security; and a means of providing some insight into the consequences of non-traditional auction arrangements. Bid-spread analysis, as developed in this paper, provides some explanations concerning the nature of bids and their statistical properties. In particular, it is shown here that, through the analysis of several datasets originating in various parts of the world, the percentage bid-spread is consistent with the assumption that bids are entirely random, being drawn from a lognormal distribution. The high values of the correlation coefficients, together with the failure of the two most popular correlates - contract size value and number of bidders – to account for any significant trends once the order statistic effects are removed provides overwhelming evidence in favor of the dominance of inherent variability in bidding.