I find comment 2. interesting for a couple reasons.
a) What it says about lowest unique bid auctions [1] and reverse auctions [2] with multiple bidders and multiple auctioneers. That the auctioneers will often (?) take the lowest bid, even if it represents "unrealistic" based on the criteria of the auction (this seems especially relevant in contract procurement).
Especially though, that even in a market, with relatively "transparent" information (concrete costs this much, lumber costs this much, ect...) there's still not much consumer transparency on what "reasonable" prices for construction represent. And consumers or "auctioneers" are likely to just take the lowest number, like a lowest unique bid auction. Whether its lack of information, strong preference for lowest price, can't be bothered to check reasonableness, purposeful cost obfuscation, or some other issue.
b) That people often fall for sunk cost issues. Especially on big purchases. Gov't might drop $100k contract without much notice. Except a $10B contract? Just keep throwing good money after bad. Consumer might switch soap brands on a tiny price fluctuation. Except a $1M house? Just keep throwing good money after bad.
Australia's had a rash of collapses lately, and it's felt this way.[3] 2000 companies in two years, and reading along, lots of companies that basically said "Give us another $200k as a payment right now." ("Even though we know we won't be able to finish your house, because our financials are horrible.") Except buyers felt like they had to, because they already committed to an expensive project.
In this case, it's not necessarily sunk cost. There are switching costs associated with bringing in a new contractor, so it is likely cheapest to continue with the current one, even if they didn't bid it right initially.
Switching costs are massive in construction. The permits and loans involved are often tied directly to the contractor and sometimes their subs for licensed trades. Many contractors wouldn’t want to come in and take over at a late stage because they can’t really vouch for what’s been done so it will be seen as risk.
a) What it says about lowest unique bid auctions [1] and reverse auctions [2] with multiple bidders and multiple auctioneers. That the auctioneers will often (?) take the lowest bid, even if it represents "unrealistic" based on the criteria of the auction (this seems especially relevant in contract procurement).
Especially though, that even in a market, with relatively "transparent" information (concrete costs this much, lumber costs this much, ect...) there's still not much consumer transparency on what "reasonable" prices for construction represent. And consumers or "auctioneers" are likely to just take the lowest number, like a lowest unique bid auction. Whether its lack of information, strong preference for lowest price, can't be bothered to check reasonableness, purposeful cost obfuscation, or some other issue.
b) That people often fall for sunk cost issues. Especially on big purchases. Gov't might drop $100k contract without much notice. Except a $10B contract? Just keep throwing good money after bad. Consumer might switch soap brands on a tiny price fluctuation. Except a $1M house? Just keep throwing good money after bad.
Australia's had a rash of collapses lately, and it's felt this way.[3] 2000 companies in two years, and reading along, lots of companies that basically said "Give us another $200k as a payment right now." ("Even though we know we won't be able to finish your house, because our financials are horrible.") Except buyers felt like they had to, because they already committed to an expensive project.
[1] https://en.wikipedia.org/wiki/Unique_bid_auction [2] https://en.wikipedia.org/wiki/Reverse_auction [3] https://www.9news.com.au/national/building-construction-comp...