Extensions of bidding theory: Concealed bidding, optimal number of bidders, and follow-on contracts

For the case in which a product with an uncertain cost is acquired in a competitive environment, Samuelson developed a bidding model that analyzes the trade-off between the objectives of risk sharing and efficient contractor selection. Using Samuelson’s model as the basic analytical framework, this paper extends earlier results for concealed bidding and the optimal number of bidders so that they apply to cost-reimbursement contracts, and extends earlier results for the optimal profit margin in a follow-on contract to allow a more general bidding situation.