Search Results

This chapter presents the Independent Private Values model, wherein bidders’ values for the object being auctioned off is a function of only their own types. The equilibrium bidding strategies and seller’s expected revenue in four distinct types of auctions (first- and second-price sealed-bid, English, and Dutch auctions) are computed. It is shown that bidders bid less than their valuations in the unique symmetric of a first-price auction, and bid their valuations in the unique symmetric equilibrium of the second-price auction.

The winner’s curse, at its core, is driven by information asymmetry because the buyer does not know the true value of the acquisition. Overpayment occurs beyond auctions; in fact, the possibility of overpaying arises in a large number of business decisions. The problem is further exacerbated in competitive bidding situations when there are other potential buyers and time to make decisions is compressed. Overvaluing an acquisition has led to reductions in gains, high debt loads, and decreases in the stock price of the firm involved. All of these situations are examined with a combination of accessible theory and very current examples.

In a period of only a few years in the early 2000s, Vodafone's then CEO Chris Gent grew the company from a small UK-based mobile operator into the world leader, with over 240 million customers. He did this via a sequence of 26 strategic transactions, including the acquisition of AirTouch and deals leading to the creation of the Verizon wireless business in the United States. Judging from Vodafone's acquisition story, Gent played his cards well, while both Vodafone's rivals and the financial markets acted irrationally in some instances. However, even Gent may have made some typical serial acquisition errors on the road to building the world's leading telecom company. This chapter uses the Vodafone story to illustrate how behavioral pitfalls in strategy, valuation, and bidding can be related to various components of the options and game valuation approach.

Valuing uncertainty in strategy requires the development of quantitative models reflecting the conceptual options games view on strategy. The application of fresh ideas based on two major strands in the existing literature—real options and game theory—has attracted increased interest, both to academia and to acquisition strategy practitioners. Despite the mathematical elegance of option game models, the key metrics and tools for implementation have not yet been fully developed, especially with regard to providing relevant managerial guidance. This chapter presents an in-depth examination of Xstrata's Falconbridge acquisition through option and game lenses in order to provide insights into the implementation of these new and effective quantitative real option models in practice, as well as pointing out their limitations.

This chapter examines a methodological dilemma of research on preferences among bets. As a byproduct, it validates a single-stimulus method for studying such preferences called the bidding method, which is far more efficient than the customary method of paired comparisons. The dilemma is this: Ss who are highly motivated to make careful choices use complex, frequently shifting strategies and so produce data which appear inconsistent, variable, and disorderly. Bored, unmotivated Ss adopt simple, easy-to-discover strategies, and seldom change them. Those Ss who play a high proportion of their choices, who are run individually, and who are not required to make too many choices per session tend to be highly motivated; Ss required to make rapid, imaginary choices in large group, experimental sessions tend to be bored. The dilemma and the effects of the two ways of resolving it are illustrated by comparing the imaginary group choice experiment of Coombs and Pruitt with the real-gambling experiments of Edwards. It is shown that the bidding method is more economical than paired-comparisons and related methods of detecting preference; this method provides powerful ratio-scale data and is sensitive to extreme likes and dislikes.

This chapter, the previous one, and the next two consider the alternative means through which a contracting strategy is devised and implemented. Chapter 6 explores how added value can be captured by the contracting organization, either through a competitive or a negotiated process. The different parts of the chapter are as follows: Competitive tendering––bidding for contracts; Pre‐selection––calling for expressions of interest; Alternative sourcing methods; The contract price; Winners and losers (a discussion of the fact that a winner's bid price may be too high and eventually lose the firm money); and Value migration.

This chapter develops the idea of a mixed strategy using the entry into a sealed-bid auction as a non-trivial example. Reaction curves are first illustrated for the case of pure strategies and then applied to computing mixed Nash equilibria. The Hawk-Dove Game is equivalent either to the Prisoner's Dilemma or Chicken, depending on parameter values. The mixed-strategy reaction curves are plotted in each case. The interpretation of mixed Nash equilibria as polymorphic equilibria in a game played by a large population is considered. The matrix algebra necessary for handling mixed strategies is reviewed and illustrated with O'Neill's Card Game. Convexity ideas are reviewed and applied to the geometric representation of mixed strategies. Cooperative and noncooperative payoff regions are introduced and illustrated using Chicken and the Battle of the Sexes. Correlated equilibria are introduced after a discussion of self-policing agreements, cheap talk, and preplay randomization. The possibility of correlation without a referee using techniques from cryptography is discussed.

After Saladin opened the Saʿīd al-Su ʿadāʾ Cairo was infused with many hundreds of juridical Sufis from the East. This immigration had a profound impact on the social and religious fabric of the city. Upon their arrival these individuals lived and worked in the very heart of urban Cairo, the bayn al-qa‚ rayn district. While the Sufis were obliged to spend portions of their day engaged in devotions within the walls of the khānqāh, they were not required to sequester themselves. They performed public rituals every evening, they paraded through the streets of Cairo every Friday, and they frequented the city’s many madrasas, mosques and teaching circles. Locals also came to the khānqāh to study with them on site. All these practices contributed to the popularisation of Sufism on a large scale in Cairo. But what exactly where these Sufis popularising?

This chapter discusses common value auction models where the value of the object being sold is the same for all players, but is not known at the time of the auction. Two examples are presented to illustrate the effects of the common value assumption in bidding behaviour and on the seller’s expected revenue. The first assumes that individual signals about the true value of the object are independently determined. In second example, signals are correlated.

This chapter presents the notion of affiliation and analyses its implications for equilibrium bidding functions and revenue. The notion of affiliation in a general multivariate context, and how theorems are essential to understanding how affiliation works are discussed. Equilibrium behaviour is characterized in second-, and first-price, and English button auctions. The expected revenue comparisons for these three auction formats and the effects of risk aversion are examined.

Auctions with independent values are described. Detailed calculations of equilibrium strategies are given for the standard auctions (first price, second price, and so on.) The fundamental revenue equivalence theorem is illustrated by computing expected revenue for five different types of auction. Optimal auctions are described. The impact of risk aversion is considered in the first price auction.

This chapter traces the evolution of inter-state transmission in India. It presents a legal and policy overview and the vision in the Electricity Act, 2003 about the development of this important segment. It highlights the importance of transmission planning and explains the provision in the law and policy in this regard. The chapter describes provisions of competitive bidding in transmission and highlights the salient features of the bidding guidelines, while presenting comparison at relevant places between the bidding guidelines for procurement of power and procurement of transmission services. The important aspect of access to inter-state transmission has also been covered in this chapter. The chapter also discusses the concept and issues of dedicated transmission line and concludes by presenting future challenges and the way forward for the development of inter-state transmission of electricity in India.

This chapter identifies and analyzes the key determinants of liquidity in the Thai bond market as measured by bid-ask spreads. It draws upon the results of this analysis to suggest ways to improve liquidity in the secondary market. It also considers policy actions the government and central bank can take to ensure that these key determinants are achieved, and provides recommendations for the authorities' role in creating an environment which best facilitates a liquid secondary market. The chapter proceeds as follows. Section 8.2 gives a brief overview of the structure of the bond market in Thailand. Section 8.3 discusses how to measure and interpret bond market liquidity, in particular the use of bid-ask spreads as a proxy for market liquidity. Section 8.4 discusses the theoretical and empirical framework used in the study, and the rationale behind it. Section 8.5 summarizes the empirical results from the estimations. Section 8.6 draws implications for policy, both for the Ministry of Finance in its capacity as an issuer of bonds, as well as for the Bank of Thailand in its role in safeguarding stability in the Thai financial system.

This chapter deals with broad aspects related to the implementation of the Electricity Act, 2003. It covers the various policies, namely, National Electricity Policy, Tariff Policy, and Rural Electrification Policy conceived and framed under the provisions of the Act, and also analyses the issues around some of the provisions of these policies. It brings before the readers the implementation challenges facing the Act and the policies. Rules and statutory orders issued under the Act have also been covered in brief. This chapter goes on to introduce the readers about the broad contours of reforms as envisaged by the Act, for instance, competitive framework like open access, tariff-based competitive bidding, reorganization of State Electricity Boards (SEBs) and other major steps on the implementation of the Act.

This chapter introduces the legal and policy provisions on the competitive procurement of electricity in India, which are one of the most important features of the Act. The salient features of the Competitive Bidding Guidelines issued by the Government of India under Section 63 of the Act have been covered. The chapter also covers the key features of the standard bidding documents like Request for Qualification (RfQ), Request for Proposal (RfP), and Power Purchase Agreement (PPA). The chapter explains in a simple language the various aspects of competitive procurement, including procurement under both location neutral and location specific procurement queries. It also describes in brief the experiences so far on competitive procurement and analyses the emerging issues and suggests the way forward to institutionalize competitive procurement in the sector.

Most financial markets are highly competitive – there are hundreds or thousands of active traders and at any time and place prices vary only within a narrow range – the bid‐ask price spread. Regulation is usually associated with monopoly; it might seem, therefore, that regulation of financial markets is unnecessary. After an introductory section on the ethics of finance and the economic function of financial markets, the second section of this chapter explains why that conclusion is unwarranted. The third section discusses the various levels of US federal regulation (the exchanges, the regulatory commissions and the courts); the fourth looks at federal regulation of trading in corporate shares and bonds by the Securities and Exchange Commission; the fifth shows how futures markets are federally regulated in the US; and the sixth is a case study of an important regulatory failure – the silver manipulation of 1979–80 in the USA. The final section looks at regulation in the UK.

The controversy surrounding contingent valuation following the Exxon Valdez disaster and the NOAA Panel report suggests the need for improved CV study designs. Three issues are of importance in CV studies: understanding option price, sorting out non‐use values, and the relationship between willingness‐to‐pay (WTP) and willingness‐to‐accept (WTA) compensation. Progress also demands more research on the types of information respondents commonly use when answering CV questions, as well as resolving issues of how to deal with zero, protest, and misstated responses.

Economic theory of responses to CV survey questions is developed, set within the framework of the random utility maximization model, which generates statistical models for the survey responses. A number of statistical issues arise in the estimation of economic welfare measures from data on CV responses using the maximum likelihood method. Optimal experimental design procedures are outlined to select the bids to be used in CV surveys. Advanced topics in statistical design and the analysis of discrete choice data are presented.