A Game Theory Model of Economic Opportunistic Bidding and Claim with a Case Study in Iran

Many governments and private projects are done by contractor. They get projects in a competitive bid auction environment. A contractor in order to overcome to other competitors in a bid auction, opportunely cuts down biding price(bids project at or below minimum profit level) and wins the contract, and hopes to recover the loss (or less profit) from this action, through negotiations or claims. Based on a dynamic game theory model, the opportunistic winner would request a compensation for the damage incurred by the party after the contract start. After a claim filed, the owner offers to negotiate with the builder. Nash equilibrium solution of this model is negotiating and settling, not going to court. Appling Rubinstein (1982) bargaining theorem the possible range of negotiation settlement is obtained. The lower bound of this range is minimum gain of builder from claim and maximum bound is maximum loss of owner in claim. In the application case, the opportunely and the claim amount are obtained between the ranges implied by the theoretical model.