Showing papers on "Bidding published in 1987"

Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns

Abstract: This study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids. The results reveal significant differences in the abnormal returns between common stock exchanges and cash offers. The results are independent of the type of takeover bid, i.e., merger or tender offer, and of bid outcomes. These findings, supported by analysis of nonconvertible bonds, are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment. RECENT STUDIES ON CORPORATE takeovers provide inconclusive results on the valuation effects of acquisitions on the common stock of bidding firms.1 Substantial differences are reported between the studies that analyze acquisitions initiated as tender offers and those that confine their samples to merger proposals. The existence of mixed empirical findings for the bidding firms makes it difficult to interpret existing evidence and to draw conclusions about the managers' acquisition motivations. Nevertheless, the reason for the substantial difference between empirical findings on mergers and tender offers still remains an unresolved issue. It is observed, however, that mergers are usually common stock exchange offers whereas tender offers are usually cash offers. Given that different methods of financing a project have different signalling implications (Myers and Majluf [39]), the differential stock returns of bidders in mergers and tender offers may be due to the method of acquisition financing.

Theory and Misbehavior of First-Price Auctions

Abstract: Recent experimental evidence appears to reject simple Nash equilibrium models of bidding behavior in first-price auctions. The author presents a methodological critique of this evidence. Existing tests have concentrated on deviations of subjects from predictions in the message space of the action: bid deviations. The author suggests that it is more natural to evaluate subject behavior in expected payoff space. He concludes that the evidence against the simple models is not significant enough to warrant their rejection. Copyright 1989 by American Economic Association.

Dissolving a Partnership Efficiently.

Abstract: Several partners jointly own an asset that may be traded among them. Each partner has a valuation for the asset; the valuations are known privately and drawn independently from a common probability distribution. We characterize the set of all incentive-compatible and interim- individually- rational trading mechanisms, and give a simple necessary and sufficient condition for such mechanisms to dissolve the partnership ex post efficiently. A bidding game is constructed that achieves such dissolution whenever it is possible. Despite incomplete information about the valuation of the asset, a partnership can be dissolved ex post efficiently provided no single partner owns too large a share; this contrasts with Myerson and Satterthwaite's result that ex post efficiency cannot be achieved when the asset is owned by a single party.

Information, Returns, and Bidding Behavior in Ocs Auctions: 1954-1969

Abstract: This paper examines federal auctions for leases on the Outer Continental Shelf in the light of the predictions of the first-price, sealed-bid, common-values model of auctions. The authors find that the data strongly support the model for auctions in which one bidder is better informed than the other bidders. The evidence for auctions in which bidders have noisy, but qualitatively similar, information is less conclusive but is consistent with a model in which each bidder does not know either the actual or potential number of bidders on a lease. Copyright 1987 by Blackwell Publishing Ltd.

Repeated Auctions of Incentive Contracts, Investment and Bidding Parity With an Application to Takeovers

Abstract: This article considers a two-period model of natural monopoly and second-sourcing. The incumbent supplier invests in the first period. After observing the incumbent's first-period performance, the buyer may break out in the second period. The investment may or may not be transferable to the second source, and it may be monetary or take the form of human capital. We determine whether the incumbent should be favored at the reprocurement stage, and how the slope of his incentive scheme should evolve over time. We find that the gains from second-sourcing are not so large as one might hope. Finally, we reinterpret the second source as a raider and the breakout as a takeover. We discuss the desirability of defensive tactics and obtain a rich set of testable implications concerning the size of managerial stock options, the extent of defensive tactics, the firm's performance, and the probability of a takeover.(This abstract was borrowed from another version of this item.)

Flight bidding system or the like especially for airline personnel

Abstract: A system and procedure is disclosed for evaluating published bid line data of commercial airlines and developing therefrom an ordered set of bid lines arranged according to the degree to which such bid lines tend to satisfy individually expressed preferences and priorities of an airline employee. A system subscriber enters his or her preferences and priorities, according to preestablished defined categories, into a computer database, preferably inputting the information through key entries on a touch tone telephone. Subsequently, when monthly bid lines are published by the employer airline, the various bid lines are computer analyzed, one by one, against the subscriber's recorded preferences and priorities, evaluating such data as credit hours, layovers, arrivals and departures, trips, days off, etc. The output of the syste is an ordered list of flight numbers, specific to a given subscriber, arranged in order of tendency to satisfy the subscriber's expressed preferences and priorities. This may be a printed record, an electronic transmission or the like. The procedures utilized are readily applicable to so-called open time bidding, as well as to bid swapping. Many of the techniques of the invention are applicable as well to other selection procedures in which selections are based upon pre-established preferences.

Sequential Product Innovation and Industry Revolution

Abstract: A certain sequence of innovations in a vertically differentiated good is considered. Two firms are engaged in a series of bidding games to acquire the (infinitely- lived) patents to these. Managerial diseconomies restrict firms to producing a single good which is chosen optimally from the set of patents owned by the firm. Product market equilibrium is Bertrand. Two theorems provide (1) a sufficient condition for the current leader to be overthrown (action-reaction) and (2) a necessary and sufficient condition for persistent dominance. An illustrative example shows that sequences satisfying these conditions can always be constructed. Copyright 1987 by Royal Economic Society.

Gains to bidder firms in cash and securities transactions

Abstract: This paper presents empirical test results of alternative hypotheses regarding differences in returns to shareholders of bidding firms that choose different payment methods (cash or securities). The evidence is consistent with the payment method signaling hypothesis, which asserts that when management of the bidding firm believes its own stock to be overvalued (undervalued), securities (cash) will be the preferred payment method. The results are not consistent with either the overpayment hypothesis or the present value/hubris hypothesis. The findings also explain the conflicting results reported in prior work on gains to bidding firms.

Distributed arbitration apparatus and method for shared bus

Abstract: Each user of an intercommunicastion bus is associated with a distinct channel of an arbitration bus and maintains a priority record indicating its current priority status against each other user. During a contention interval each user then seeking to use the intercommunication bus bids for use of it by transmitting a bus request signal and makes an analysis of the signals to ascertain if it has a dominating priority for initiating a transaction on the bus, and access is granted accordingly. During the use-signal interval a user then using the intercommunication bus transmits an in-use signal used to up-date priority records with the effect of giving the last using user lowest priority. For transactions which require a response from a user other than the one initiating the transaction, a second round of bidding is conducted to determine whether any user is qualified to respond and if so which will be enabled to do so. When the response bidding shows no bidders the system immediately initiates bidding for a new transaction.

Optimum mark-up for bidding: a preference-uncertainty trade off approach

Abstract: This paper outlines a procedure for selecting the mark-up in competitive bidding situations. The procedure is developed on the basis of multidimensional utility theory. Mark-up is split into different segments representing different contexts. The contexts that have been considered are loss, general overhead, and profit. These segments are assigned separate utility functions, which represent the underlying reference structure of the bidder. The individual utility functions are then combined into one additive function. This function is transformed into an expected utility curve by successive consideration of sources of uncertainty. The mark-up corresponding to the maximum expected utility is considered to be the optimum mark-up.

Applying competitive bidding to health care.

Abstract: This paper reviews the empirical literature on competitive bidding for health services under public programs and, in this context, discusses the major issues that must be confronted in designing bidding systems. These issues include the specification of units of service, the selection of winning bidders, the determination of reimbursement for winning bidders, the treatment of losing bidders, and contract enforcement. The paper then illustrates these issues in practice by outlining one possible competitive bidding system for purchases and rentals of durable medical equipment under the Medicare program.

Competitive bidding and opportunity costs

Abstract: Methods of analyzing competitive bidding have treated construction projects as isolated elements to be optimized without regard to availability of work or other opportunity costs. This paper shows how resource restraints and opportunities can be easily included in these competitive bid analyses, so that a contractor's decisions concerning the overall firm or its individual projects reflect a broad view of the firm's market position. It is shown how markup decisions and predictions of corresponding expected values can take into consideration other possible projects and uses for the firm's limited resources, and also it can take into consideration estimated project costs that differ from the historical base. Consideration of opportunity costs and resource restrictions integrates data and decisions for greater understanding of a firm's competitive position and better business decisions in general. An example demonstrates the methods.

Optimal constrained bidding

Abstract: Consider a bidder who, subject only to a constraint on his choice of bidding strategy, will choose a strategy that maximizes his expected gross receipts. The bidder's choice of strategy may be constrained by an upper limit on exposure, an upper limit on expected expenditures, or a lower limit on expected profits. We prove that constraining the bidder only by an appropriate upper limit on expected expenditures in effect limits him to expected profit maximizing strategies; in many examples, expected profit maximizing strategies can not be induced by solely limiting the bidder's exposure.

Privatization and bidding in the health-care sector.

Abstract: Public provision of health care, as under Medicare and Medicaid, traditionally "privatized" major production decisions. Providers of care, largely private physicians and hospitals (but also public hospitals), made significant decisions about public beneficiaries' access to care, the quality and quantity of individual services, and the prices to be paid. The result was high access and quality/quantity, but also high program spending, which has prompted a reassertion of public budgetary control. Newly activist program administration is using various mechanisms to promote economizing. Unable and unwilling to specify standards of public access or quality/quantity too overtly, administration instead seeks to squeeze prices--mainly through administrative price setting but also through competitive bidding and voucherlike arrangements. Under such new incentives, major choices that in many non-American systems would be public are here "reprivatized" to be resolved out of the limelight by beneficiaries, traditional providers, or new intermediaries like Competitive Medical Plans.

Competitive Bidding for Engineering Services

Abstract: The use of competitive bidding for engagement of engineering services continues to increase. A review of the current status of the practice with particular reference to public agencies is presented and analyzed. Both advantages and disadvantages of various methods used are discussed. The use of competitive bidding is detrimental to the quality of engineering services, and invariably results in an adversarial client relationship. Guidelines are provided for those instances where competitive bidding is the only method proposed for selection of the engineer. The engineer is cautioned that his relationship to the client will be adversarial and appropriate contact provisions are required.

Corporate acquisitions: method of payment effects, capital structure effects and bidding firms' stock returns

Abstract: This study examines the effects of both the method of payment and the capital structure rearrangements on the common stock returns of bidding firms at the initial announcement of takeover bids. The evidence suggests that cash offers generate consistently higher abnormal returns than do stock exchanges. In both cash offers and stock exchanges, abnormal returns are not affected by the market's perception of changes in the firm's capital structure.

Theory and Misbehavior of First-Price Auctions

Abstract: Recent experimental evidence appears to reject simple Nash equilibrium models of bidding behavior in first-price auctions. The author presents a methodological critique of this evidence. Existing tests have concentrated on deviations of subjects from predictions in the message space of the action: bid deviations. The author suggests that it is more natural to evaluate subject behavior in expected payoff space. He concludes that the evidence against the simple models is not significant enough to warrant their rejection. Copyright 1989 by American Economic Association. (This abstract was borrowed from another version of this item.)

Bidding Optimum Bonus for Federal Offshore Oil and Gas Leases

Abstract: How a bidder should bid for federal offshore oil and gas leases offered by bonus bidding is detailed. Quantitative answers are given for bidders seeking to maximize value as well as reserves. The winner's curse is delineated. Further, it is shown how bidding as a joint venture rather than solo can diminish bidders' values.

A Test of Contingent Market Bid Elicitation Procedures for Piecewise Valuation

Abstract: Economists are frequently faced with the task of valuing commodity package components. The valuation of specific impacts of public policies is a case in point. Two contingent market bid elictation procedures were tested for valuing changes in single components of a multicomponent government program. Results of the test suggested that respondents provided more accurate component or piecewise valuations when a two-step bidding approach, rather than a one-step approach was used. Thus, there is evidence that a two-step approach which helps respondents to isolate valuations for package components is perhaps a preferable bid elicitation procedure for piecewise valuation.

Development of an expert investment strategy system for aerospace RD&E and production contract bidding

Abstract: A small expert system developed in an aerospace firm is described. The expert system, called INSTRAT, assists managers with investment decisions associated with R&D, engineering, and production contract bidding. These decisions are a frequent and bothersome problem within the firm. INSTRAT is also used for training new staff and as a computerized “road map” or checklist for the more experienced managers. The expert system was written using the OPS5 development language and consists of almost two hundred rules. A survey of artificial intelligence (AI), expert systems (ES), expert support systems (ESS), and the OPS5 language is provided with emphasis on engineering management applications. The artificial intelligence/expert systems model building approach was found to produce a satisfactory decision aid for the firm's managers. This approach was evaluated to be as good as or better than the more traditional operations research, management science, or decision support system approaches for the investment decision problem described in the paper.

Competitive bidding for home care under the channeling demonstration.

Abstract: Competitive bidding is a relatively new strategy for setting rates and choosing providers for public medical care programs. In this article, the experience in competitive bidding by home health care providers and homemaker agencies in the National Long-Term Care Channeling Demonstration is described. Particular attention is paid to contrasting approaches that select a single winning bidder with those that select multiple winning bidders for the same service. Results are discussed with respect to bid prices, characteristics of winning bidders, administrative demands, and service delivery.

A large scale land use model based on the random utility/ bidding theory

Abstract: The aim of this study is to develop an operational land use model based on an exact theoretical model, so that future land use can be predicted quantitatively by considering small units of land. The basic equations of this new model have been derived from the conventional approach used in new urban economics. Then, these model equations have been translated into stochastic models, assuming the randomness of both utility and rent bidding in the land market. An operational pilot model has been constructed for a city in the tokyo metropolitan area, the results of which show sufficiently the validity of the concept (a).