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a recent post advised "never take the lowest price (on anything)" 

This got me thinking, what if there were a contract open for bids, with the condition that the _second to lowest_ bid will be chosen. 

What effect do you think this would have?

Friday, February 6, 2004

I for one would not bid on the contract.  If I would have to be contracted to a company that decided to award a proposal based solely upon being the second lowest bidder, I don't think I could stomach whatever other ridiculous decisions they would make throughout the lifetime of the project.

Friday, February 6, 2004

Something like this technique, in reverse, is employed in Vickrey auctions:

John C.
Friday, February 6, 2004

"Bidders fully understand the rules and modify their bids as circumstances dictate. In the case of a Vickrey auction, bidders adjust upward. No one is deterred out of fear that he will pay too high a price."

So this would mean nobody is afraid to pay too low a fee?
Friday, February 6, 2004

Don't be silly. You tell everyone you're going to take the lowest bidder and then disqualify the lowest bidder on some technicality.

Friday, February 6, 2004

No, you take the second lowest PRICE, but with the
lowest bidder. This is a standard system in economics,
it is designed to nullify the incentives to bid the other
person down with a ludicrous bid. And you make these
rules clear at the start to everyone bidding.

Friday, February 6, 2004

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