A Game Theoretic Approach to Understand Opportunistic Behavior in Project Network Subcontractor Selection

Abstract

The construction industry has been shown to suffer from poor productivity performance and a lack of innovation. One area where substantial improvement potential lays is subcontractor selection. Subcontractor selection strategies employed by contractors can significantly impact the success of individual organizations and the overall efficiency of the market. Long-term partnerships are promoted by experts from both academia and industry as a means of achieving improved project network productivity; however, opportunistic bidding behavior that may accompany its implementation has been largely ignored. We conducted a bidding experiment to simulate whether opportunistic behavior would emerge in the subcontracting process. The purpose was to observe whether the hold-up problem occurs as previous simulation research focused on game theory indicates. The empirical data was collected through an internet based interactive bidding simulation developed by the investigators. The findings contribute to the project management literature by empirically demonstrating how opportunistic behavior occurs in the bidding process and how it leads to different partner selection strategies by contractors and different market outcomes in terms of efficiency.