Competitive bidding as the most effective price analysis method
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Price Analysis
When individuals or organizations purchase goods or services there is generally some kind of price analysis performed whether it be a formal process or an informal one that is simply based on some heuristic. Some of the different price analysis techniques include (Woods Hole Oceanographic Institution, N.d.):
Comparison of Competitive Bids
Comparison of Prior Quotations
Comparison of Published Price List
Prices Set by Law or Regulation
Similar Item Comparison
Rough Yardstick Comparison
Cost Plus Pricing
Each technique has different advantages and limitations. For example, using a rough yardstick approach is simple and quick however does not provide an accurate analysis in most cases.
If I were limited to one type of pricing analysis to use for the rest of my life, I believe I would have to choose the comparison of competitive bids. By utilizing competition, you can ensure that you are not being overly charged high rates because if a single firm was price gouging, then another firm would undercut their price. If firms are forced to compete against each other, the likely result is that you will get their best price (or close to it) on the initial bid. Usually competitors will monitor each other's prices and may adjust their prices accordingly which can skew the results somewhat. However, there are several techniques that can be added to competitive price analysis that can prevent this from occurring.
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