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If one allows for the conditions of the real world of entrepreneurial strategy, how is one to discern and interpret what may appear to be overbidding for capital goods?
Evidence of a winner's curse in naturally occurring markets is less common because of data availability problems and is less robust because there are often alternative explanations for apparent overbidding. For example, Capen, Clapp, and Campbell (1971) found overbidding and low returns on federal auctions of offshore oil leases, but Hendricks and Porter (1988) concluded that the pattern of bids on such leases was consistent with rational behavior in the presence of asymmetric information.
A contractor who doesn't allocate the cost of owned equipment risks underbidding on equipment-intensive jobs and overbidding on jobs with lighter equipment needs.
Hanh Ahee, Stanford University, and Ulrike Malmendier, Stanford University and NBER, "Biases in the Market: the Case of Overbidding in Auctions"
What's more, Wood recommended overbidding the project slightly to protect against unforeseen expenses.
Nearly all bankruptcy sales are subject to overbidding. Thus, whether your client should in fact come to the hearing unannounced or contract to become a stalking horse depends upon the nature of the asset being bought and the circumstances of the purchase.
Now Andersen Consulting estimate customers will be charged an extra pounds 14 a month to pay for the overbidding.
Yet, if unsecured creditors or an official creditors' committee diligently watches over the process, the overbidding process can sometimes produce the most value possible for return to a troubled business' creditors.
The likelihood of overbidding is increased by the white knight's position in the sequential bidding process: by definition, white knights are participants in competitive acquisitions involving more than one bidder, and the white knight enters the contest subsequent to the first bidder's attempt.
"The list is ready, but its publication requires the joint efforts of all parties, organisations and unions to push the government to take the step, far from overbidding."
While the issue of overbidding has received much attention (see, e.g., Dechenaux, Kovenock, and Sheremeta 2015 or Sheremeta 2013), the high variance of efforts over time, or overspreading, has only recently ' been addressed.
It got into financial difficulties after overbidding for the renewal of the franchise which was then awarded to National Express.