Showing papers on "Bidding published in 1990"
TL;DR: In this article, the authors present evidence that some types of bidders systematically overpay in acquisitions, thereby reducing the wealth of their shareholders as opposed to just revealing bad news about their firm.
Abstract: In a sample of 326 US acquisitions between 1975 and 1987, three types of acquisitions have systematically lower and predominantly negative announcement period returns to bidding firms. The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target, and when its managers performed poorly before the acquisition. These results suggest that managerial objectives may drive acquisitions that reduce bidding firms' values. THERE IS NOW CONSIDERABLE evidence that making acquisitions is a mixed blessing for shareholders of acquiring companies. Average returns to bidding shareholders from making acquisitions are at best slightly positive, and significantly negative in some studies (Bradley, Desai and Kim 1988, Roll 1986). Some have suggested that negative bidder returns are purely a consequence of stock financing of acquisitions that leads to a release of adverse information about acquiring firms (Asquith, Bruner, and Mullins 1987). In this case, negative bidder returns are not evidence of a bad investment. An alternative interpretation of poor bidder performance is that bidding firms overpay for the targets they acquire. In this paper, we present evidence that some types of bidders systematically overpay. There are at least two reasons why bidding firms' managers might overpay in acquisitions, thereby truly reducing the wealth of their shareholders as opposed to just revealing bad news about their firm. According to Roll (1986), managers of bidding firms are infected by hubris, and so overpay for targets because they overestimate their own ability to run them. Another view of overpayment is that managers of bidding firms pursue personal objectives other than maximization of shareholder value. To the extent that acquisitions serve these objectives, managers of bidding firms are willing to pay more for targets than they are worth to bidding firms' shareholders. Our view is that when a firm makes an acquisition or any other investment, its manager considers both his personal benefits from the investment and the consequences for the market value of the firm. Some investments are particularly attractive from the former perspective: they contribute to long term growth of the firm, enable the manager to diversify the risk on his human capital, or
1,617 citations
01 Jan 1990
TL;DR: The authors examined the sample of all 62 hostile takeover contests between 1984 and 1986 that involved a purchase price of $50 million or more and found that 50 targets were acquired and 12 remained independent.
Abstract: HOSTILE TAKEOVERS invite strong reactions, both positive and negative, from academics as well as the general public. Yet fairly little is known about what drives these takeovers, which characteristically involve significant wealth gains to target firms' shareholders. The question is where these wealth gains come from. We examine the sample of all 62 hostile takeover contests between 1984 and 1986 that involved a purchase price of $50 million or more. In these contests, 50 targets were acquired and 12 remained independent. We use a sample of hostile takeovers exclusively to avoid using evidence from friendly acquisitions to judge hostile ones, as many studies have done. We examine such post-takeover operational changes as divestitures, layoffs, tax savings, and investment cuts to understand how the bidding firm could justify paying the takeover premium. We also examine the possibility of wealth losses by bidding firms' stockholders as the explanation for target shareholder gains. The analysis of post-takeover changes is complicated because once the target and the bidding firms are merged, it becomes impossible to attribute to the target the changes recorded in joint accounting data. As a consequence, we do not use such data, but rather focus on discussion in annual reports, 1OK forms, newspapers, magazines, Moody's and
504 citations
01 Sep 1990
TL;DR: The main tenet of Coase's theory is that economic activities tend to be organized efficiently, that is, so as to maximize the expected total wealth of the parties affected as discussed by the authors.
Abstract: This chapter is concerned with the economics of organization and management, a relatively new area of study that seeks to analyze the internal structure and workings of economic organizations, the division of activity among these organizations, and the management of relations between them through markets or other higher-level, encompassing organizations. The dominant approach to this subject is transaction-cost economics, as introduced by Coase (1937, 1960) and developed by several others since, most notably Williamson (1975, 1985). The main tenet of Coase's theory is that economic activities tend to be organized efficiently – that is, so as to maximize the expected total wealth of the parties affected. In this context, two sorts of costs are customarily identified – those of physical production and distribution and those of carrying out necessary exchanges. Because these are typically treated as distinct and separable, the efficiency hypothesis becomes one of transaction-cost minimization: The division of activities among firms and between a firm and the market is determined by whether a particular transaction is most efficiently conducted in a market setting or under centralized authority within a firm. This approach has two conceptual problems. First, the total costs a firm incurs cannot generally be expressed as the sum of production costs – depending only on the technology and the inputs used – and transaction costs – depending only on the way transactions are organized. In general, these two kinds of costs must be considered together; efficient organization is not simply a matter of minimizing transaction costs.
437 citations
Patent•
30 Oct 1990
TL;DR: In this article, an improved system and apparatus for conducting secret bidding procedures is presented, which provides for the reception of bidding data for a particular bid recipient in a particular division of a particular job, once received, this information is stored and processed electronically.
Abstract: An improved system and apparatus for conducting secret bidding procedures. The apparatus provides for the reception of bidding data for a particular bid recipient in a particular division of a particular job. Once received, this information is stored and processed electronically. The bid information is collected until a preset date when the system automatically transmits a bid report detailing the bidders and their associated bids to each bid recipient. At a second preset date the system transmits a bid comparison report revealing only the amount of each bid to each of the bidders who submitted a bid for the particular division.
414 citations
TL;DR: In this article, the authors argue that fear of cheating and especially disincentives for bidders to follow truth-revealing strategies are important explanations for sealed second-price auctions seldom occur.
Abstract: In 1961, Vickrey showed that, in an independent private-values context with symmetric risk-neutral bidders, sealed second-price auctions have dominant truth-revealing equilibrium strategies, that they are perfectly efficient economically, and that they produce the same expected revenue for bid takers as equilibrium strategies in oral progressive auctions, Dutch auctions, or standard, first-price sealed bidding. Yet sealed second-price auctions seldom occur. We argue that fear of cheating and especially disincentives for bidders to follow truth-revealing strategies are important explanations. We model auctions in which third parties capture a fraction of the economic rent revealed by the second-price procedure.
407 citations
TL;DR: In this paper, the authors explain that two other approaches, negotiation and cooperation, may be more appropriate under certain conditions, such as the characteristics of the external environment (especially the number of service suppliers), the level of organizational resources (e.g., personnel, funds, time, and expertise), and the degree of uncertainty about funding, future events, service technologies.
Abstract: Contracting for public services from public or private suppliers is now a common prescription to improve government efficiency. The competitive bidding model is usually viewed as the ideal contracting process. However, this article explains that two other approaches—the negotiation model and the cooperation model—may be more appropriate under certain conditions. The primary factors that are likely to determine which of the three approaches is most suitable are (a) the characteristics of the external environment (especially the number of service suppliers), (b) the level of organizational resources (e.g., personnel, funds, time, and expertise), and (c) the degree of uncertainty about funding, future events, service technologies, and causal relationships between service outputs and desired outcomes. The main point is that there is no one best way to contract for services; rather, government units should adapt their contracting procedures to both internal external conditions to implement service contracting in an effective manner.
175 citations
TL;DR: This article found that investment-banker advisory fees in tender offers average 1.29% of the value of a completed transaction, far below the levels often alluded to in the business press.
173 citations
TL;DR: In this article, the authors considered three mechanisms that extend the standard fixed quantity auction: (i) sole sourcing with output chosen in advance by a buyer with downward-sloping demand, (ii) single sourcing with an output schedule based on revelation of cost parameters, and (iii) multiple Sourcing with output allocation across suppliers.
171 citations
Posted Content•
TL;DR: This paper found that the returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target, and when the performance of its managers has been poor before the acquisition.
Abstract: This paper documents for a sample of 327 US acquisitions between 1975 and 1987 three forces that systematically reduce the announcement day return of bidding firms. The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target , and when the performance of its managers has been poor before the acquisition. These results are consistent with the proposition that managerial rather than shareholders' objectives drive bad acquisitions.
166 citations
TL;DR: In this paper, the authors obtained explicit equilibrium bidding functions for first-price and second-price auctions with uncertainty about the number of rivals, in a symmetric model with risk-neutral bidders holding independent information.
138 citations
01 Jan 1990
TL;DR: In this article, the authors show how common sense is constantly perverted by the requirements of the bidding process in the procurement and public management process, and how this perversity is exploited by the authors.
Abstract: Examining procurement and public management, this study shows how common sense is constantly perverted by the requirements of the bidding process.
Posted Content•
TL;DR: In this article, a first price, sealed bid auction with a random reservation price where the object has an unknown common value, but one buyer has better information than the others was analyzed.
Abstract: The paper analyzes a first price, sealed bid auction with a random reservation price where the object has an unknown common value, but one buyer has better information than the others. We permit the reservation price to be correlated with the information of the informed buyer, which reflects both his assessment of the value of the object and probability of rejection at any bid. Assuming all random variables are affiliated, we establish the following results. (1) The rate of increase in the distribution of the uninformed bidder is never greater than the rate of increase in the distribution of the informed bid. (2) The distributions are identical at bids above the support of the reservation price. (3) The informed buyer is more likely to submit low bids. We demonstrate that these restrictions are satisfied by bid data from the federal sales of offshore drainage leases.
TL;DR: This paper juxtaposes the probability matching paradox of decision theory and the magnitude of reinforcement problem of animal learning theory to show that simple classifier system bidding structures are unable to match the range of behaviors required in the deterministic and probabilistic problems faced by real cognitive systems.
Abstract: This paper juxtaposes the probability matching paradox of decision theory and the magnitude of reinforcement problem of animal learning theory to show that simple classifier system bidding structures are unable to match the range of behaviors required in the deterministic and probabilistic problems faced by real cognitive systems. The inclusion of a variance-sensitive bidding (VSB) mechanism is suggested, analyzed, and simulated to enable good bidding performance over a wide range of nonstationary probabilistic and deterministic environments.
TL;DR: In this article, the authors examine the portfolio problem of an auditor who controls the level of audit quantity and then combines investments in general market securities with investments in risky audits, and discuss the possible impact of a portfolio view of audit risk upon the structure of the auditing industry.
Abstract: . This paper examines the portfolio problem of an auditor who controls the level of audit quantity and then combines investments in general market securities with investments in risky audits. We note that an auditor cannot simply choose audits to add to the portfolio but, rather, that a portfolio is constructed indirectly through a process of bidding against competitors. Thus, our analysis yields a bidding function that provides an estimate of the minimum fee an auditor is willing to accept to serve a potential new client, given existing investments. We develop propositions concerning the effects of various portfolio characteristics on the fee bid. Finally, we discuss the possible impact of a portfolio view of audit risk upon the structure of the auditing industry.
TL;DR: In this paper, the authors show that contract enforcement is an important determinant of bidding behavior and the efficiency of auctions, and that the effectiveness of the auction mechanism is limited by the extent of the contractual commitment.
Abstract: Auctions for contracts are generally viewed as a way to elicit accurate information about supplier costs. However, the effectiveness of the auction mechanism is limited by the extent of the contractual commitment. Competitive bids for contracts involve both a price and a promise to peiform a service. The cost information conveyed by the bid is based on whether the firm intends to carry out its promise. Thus, the accuracy of cost information revealed by competitive bidding depends on the consequences of not carrying out contractual commitments. The present article shows that contract enforcement is an important determinant of bidding behavior and the efficiency of auctions. In the U.S. economy, many franchise contracts and contracts for the production of goods and services are allocated to sellers on the basis of competitive bidding. Auctions for contracts often are seen by economists as the mirror image of bidding to purchase an object, such as a painting. In contract auctions, the firm entering the lowest bid is awarded the contract, just as in sales auctions where the buyer making the highest bid obtains the painting. While providing a useful analogy, this symmetry can create a mis-
TL;DR: In this paper, the authors present empirical evidence concerning the value offranchise bidding competition as a means of controlling natural monopoly behavior in the cable television industry, using data collected in a survey of local government officials in cabled communities throughout the continental United States.
Abstract: This article presents empirical evidence concerning the value offranchise bidding competition as a means of controlling natural monopoly behavior. The analysis focuses on the cable television industry, using data collected in a survey of local government officials in cabled communities throughout the continental United States. One important potential problem raised by critics offranchise bidding is the ability offranchise winners to engage in ex post opportunistic behavior by reneging on the promises that they made in order to win the franchise contract. The results of my analysis suggest that although franchise competition does leadfirms to engage in some degree of opportunistic behavior, the extent of opportunism is not severe. Furthermore, reputation effects appear to play a role in constraining firm behavior, while rate regulation actually seems to exacerbate ex post behavioral problems.
TL;DR: In this paper, a quantitative method for incorporating decision-maker preferences into the bidding process when multiple criteria are to be considered is presented, based upon the merging of stochastic bidding models with the analytical hierarchy process (AHP).
Abstract: Typically, the only criterion quantitatively considered in competitive bidding optimization is profit criterion. This may or may not lead to suboptimal decisions when a decision maker's total utility is considered, depending upon the importance of profit relative to other criteria, such as loss avoidance or work force continuity. Common sense generally provides a basis for subjective modification of profit‐based bidding strategies in order to incorporate additional criteria. However, the more complex the situation, the more difficult it becomes to determine what strategy modifications are appropriate. This paper presents a quantitative method for incorporating decision‐maker preferences into the bidding process when multiple criteria are to be considered. The method is based upon the merging of stochastic bidding models with the analytical hierarchy process (AHP). Inputs are cost data, competitor data, and decision‐maker preferences, while output is a set of composite weights by which alternative bid mark...
TL;DR: In this paper, an explicit Bayesian prior distribution for the risk attitudes of experimental subjects was constructed and the experimental results were revisited, and it was shown that observed bidding behavior is still inconsistent with the Nash predictions when explicit prior weights are attached to alternative assumptions about subject risk attitudes.
Abstract: Non-cooperative bidding theory for sealed-bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents. Received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects. Those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to risk or are all risk neutral. This paper constructs an explicit Bayesian prior distribution for the risk attitudes of experimental subjects and reconsiders the experimental results. It finds that observed bidding behavior is still inconsistent with the Nash predictions when explicit prior weights are attached to alternative assumptions about subject risk attitudes. Thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes. Non-cooperative bidding theory for sealed-bid auctions generally implies testable predictions that are conditioned on the risk attitudes of agents. Archetypical of this result is the Nash Equilibrium prediction for First Price auctions for an object that is valued by agents in an independent and private manner. Received laboratory experiments that purport to test this theory do not generally control for the risk attitudes of subjects. Those experiments exhibit behavior inconsistent with popular bidding models that assume that agents have the same aversion to riskor are all risk neutral. In this paper we construct an explicit prior distrlbution for the risk attitudes of experimental subjects and reconsider the experimental results. We find that observed bidding behavior is indeed consistent with the Nash predictions when explicit prior weights are attached to alternative assumptions about subject risk aversion. However, when one allows for risk loving subjects as well, observed behavior is inconsistent with Nash predictions. Thus one cannot account for observed bidding anomalies by appealing to uncontrolled nuisance variables such as risk attitudes. In section I we consider a specific Nash Equilibrium (NE) bidding model due to Cox, Roberson and Smith (1982) and Cox, Smith and Walker (1988) that clearly illustrates the risk-sensitivity of the theoretical predictions. In section II we provide independent evidence of the risk attitudes of experimental subjects in a test for risk attitudes developed by Harrison (1986a). This evidence allows us to construct an explicit prior probability density function over the coefficient of (constant relative) risk attitudes employed in the specific bidding model of section I. In section III we reconsider the evidence from the First Price (FP) experiments reported in Cox, Roberson and Smith (1982) and Cox, Smith and Walker (1983a, 1983b). I. A Specific Bidding Model Cox, Roberson and Smith (1982), hereafter CRS, present a model based on a power function utility specification for agent i: Ui(y) y= (1) Received for publication August 31, 1987. Revision accepted for publication December 18, 1989. * University of South Carolina. I am grateful to two anonymous referees for helpful comments, although they are not responsible for my conclusions.
TL;DR: In this paper, the authors conducted 15 first-price auction experiments, each with four bidders, designed to test Cedric Smith' hypothesis that risk-neutral behavior can be induced in subjects' decisions by paying them in lotteries on money that are linear in the outcome probabilities.
Abstract: This article reports 15 first-price auction experiments, each with four bidders, designed to test Cedric Smith' (1961) hypothesis that risk-neutral behavior can be induced in subjects' decisions by paying them in lotteries on money that are linear in the outcome probabilities. We choose the first-price auction environment because of its relatively high success in surviving a large number of tests, which contrasts with the widely documented tendency of subjects to violate the expected utility axioms in making choices among gambles. In the first five experiments, subjects were experienced in first-price auctions with monetary rewards. We prescreened these subjects for exceptionally high bidding consistency with the constant relative risk-averse model. The results unyielded only weak support for the risk-neutralizing procedure (3 of 10 risk-averse cases became risk-neutral, but only 1 in 8 that were retested continued to exhibit risk-neutral behavior). We recruited 16 new subjects with no previous experience for four lottery-only auctions. Eight of the 16 subjects bid as if risk-neutral, but in a retest of 12 subjects only 2 remained consistently risk-neutralized. Finally we recruited 12 inexperienced subjects, and each subject bid against 3 robot bidders whose bidding strategies were known to the human bidder. We use this procedure to control for Nash expectations. These 12 subjects were run under both monetary and lottery reward conditions. Two of the 12 subjects bid as if risk-neutral in the lottery auction, but both of these subjects had shown risk-neutral behavior with monetary rewards. In conclusion, we find very weak support for the risk-neutralizing procedure. We caution other researchers to run calibration tests of the procedure in the particular context they are studying to assess its reliability.
TL;DR: This paper reports on an approach to the development of such a commitment under deterministic (CPM) or probabilistic activity durations and is accompanied by a computer program for the PC.
TL;DR: In this paper, a revenue maximizing English auctioneer will, in general, find it optimal to use a non-constant reserve price that is a function of the observed bid sequence.
TL;DR: The issue in dispute began with HGOC's resistance to allowing consideration of full costs for converting computer programs fi'om the form used by incumbent computers to the form needed for equipment of prospective new vendors.
Abstract: The issue in dispute . . . began with HGOC's [House Government Operations Committee] resistance to allowing consideration of full costs for converting computer programs fi'om the form used by incumbent computers to the form needed for equipment of prospective new vendors. HGOC correctly believes that considering full conversion costs tends to restrict competition to vendors of equipment compatible with incumbent machines. P. R. Werling, Ph.D. dissertation
Journal Article•
TL;DR: In this article, a relatively new and innovative approach for determining the low bidder on highway construction contracts is presented, where each bidder proposes both a time duration for the project and traditional unit prices for the work items.
Abstract: Details are presented of a relatively new and innovative approach for determining the low bidder on highway construction contracts. In the cost and time method, each bidder proposes both a time duration for the project and traditional unit prices for the work items. A road user cost (RUC) is applied to the proposed contract times. The low bidder is determined as the proposal that provides the lowest combination of bid cost and total RUC. Several state transportation authorities have experimented with this system. Results of these trial cases and the comments of the participants provide interesting indications as to the merits of this new system. Data acquired from 16 case studies are analyzed. Using the conclusions, an innovative bidding procedure is developed for application in public and private sectors.
Book•
06 Jul 1990
TL;DR: A survey of contract price forecasting and bidding techniques can be found in this article, with a focus on the following directions: developmental appraisal value management, risk analysis, life cycle cost management, and expert systems methodology.
Abstract: Quantity Surveying Techniques - New directions Developmental appraisal Value management Developments in contract price forecasting and bidding techniques Risk analysis Life cycle cost management Expert systems methodology Computer aided design Integrated databases Procurement systems for bidding Index
TL;DR: In this article, the use of Friedman's approach to bidding is examined in situations where the competitors all bid with the same markup and the same distribution of uncertainty in the cost estimate, and the optimum markup is found for different distributions of the cost estimates, for different versions of the expected profit and for different formulae for the probability of winning.
Posted Content•
Posted Content•
TL;DR: This paper examines the ability of agents to learn bidding strategies by using artificially intelligent agents who learn adaptively, and suggests several new hypotheses about bidding behavior, and about the various auction institutions.
Abstract: While there is an extremely active theoretical literature on auctions, little is known about the actual behavior of bidders in real auctions. This is partly due to the scientist's inability to observe the values or strategies of bidders. When values are induced using experiments, subjects are often unable to formulate Nash equilibrium bids. Rather than using human subjects, this paper examines the ability of agents to learn bidding strategies by using artificially intelligent agents who learn adaptively. We examine first-price common-value auctions, and firstand second-price auctions with both affiliated and independent private-values. We find that there are many striking parallels between the artificial agents and humans. Since we can observe both the values and the strategies of the artificial agents, we are able to conjecture about .the behavior of humans in the different auction environments. With this model of adaptive learning, we are able to understand many of the "bidder errors" 9bserved in experiments. We suggest several new hypotheses about bidding behavior, and about the various auction institutions.
Patent•
05 Dec 1990
TL;DR: A poker-type game in which distributed cards by a dealer are sequentially bid by sequential players, where each bid is defined by a number of like cards held by each bidder or believed to be held by opposing players as mentioned in this paper.
Abstract: A method for playing a poker-type card game in which distributed cards by a dealer are sequentially bid by sequential players, wherein each bid is defined by a number of like cards held by each bidder or believed to be held by opposing players, whereupon each bid if successful awards a bidding player a predetermined amount of money from each opposing player, wherein such bid is challenged by an opposing player successfully, a bidding player must pay each opposing player an equal predetermined amount of currency.
TL;DR: A conceptual framework, the bidding pyramid, is presented for understanding the interrelationships between the six major internal variables that management should adjust if optimal performance is to be achieved.
Abstract: Firms that obtain orders through frequent competitive bidding often fail to realize that the analysis required for making strategic marketing decisions is quite different from that for firms where competitive bidding is absent. This article presents a conceptual framework, the bidding pyramid, for understanding the interrelationships between the six major internal variables that management should adjust if optimal performance is to be achieved. The framework has been derived as the result of research undertaken in the U.K. construction industry.