Ans. 10(A) Winner’s Curse: If the winner of an auction discovers that he has overpaid, the phenomenon is referred to as ‘winner’s curse’. In auctions where the winning prize generally has a common value (and the information is incomplete), the winning bidder tends to overpay and is hence susceptible to the ‘winner’s curse’.
In a common value auction, the item on auction is of roughly equal value to all bidders. The auction participants try to estimate the value of the item being auctioned as best as they can and place bids according to their assessments. The auction’s winner is the bidder who submits the highest bid. If there are many bidders and each bidder conducts independent value assessments, the average estimated value can reasonably …show more content…
M&M led in the first round of bidding but had cautiously evaluated its cognitive and emotional reasons for acquiring JLR brands. Though it was keen to acquire primarily the Land Rover brand, it had concerns over the supply of engines from Ford and feared the onset of new tighter European Union emission regulations, noting that neither of the two brands (Jaguar and Land Rover) had smaller fuel-efficient models in their product lines19. Given its scale of business, M&M also realised that it was not in a position to withstand an economic downturn20. Hence, in the second round of bidding, M&M did not bid beyond USD 1.9 billion to match higher bid (of USD 2.05 billion) from Tata Motors and pulled out of the race21. Indeed, the economic meltdown of 2008 adversely impacted JLR. Though Tata Motors was able to withstand the impact due to its deep pockets, the meltdown could have been devastating for M&M had it outbid Tata Motors and won the …show more content…
Though Tata Motors bid the highest in the auction, it had treaded cautiously and had gathered much information to ascertain the value of JLR to the Tata Group. It saw the acquisition an opportunity to expand its presence in the passenger car market beyond India and the clout necessary to compete with international players22. Tata Motors believed the acquisition to provide significant potential for revenue synergies, access to world-class engineering capability and avenues of strong relationship between Tata’s steel and motoring businesses thus promising long-term benefit for the Group. While traditional buyers saw more risks than opportunities, Tata saw a high (private) value in JLR23. Being aware that it was the preferred buyer by Ford and after cautiously evaluating its options, Tata Motors made Ford contribute about USD 600m to the JLR pension plans as well as agree on supply of various technologies and financing for the dealers and customers during a transitional period of up to 12 months. Tata Motors, thus effectively paid less than USD 1.7 billion which was very close to the generally estimated value of JLR at that time (Merrill Lynch had valued JLR around USD 1.5 billion)24 and seemingly lower than JLR’s true value estimated by Tata Motors for the Group. After an initial difficult period, JLR became the crown jewel
In a common value auction, the item on auction is of roughly equal value to all bidders. The auction participants try to estimate the value of the item being auctioned as best as they can and place bids according to their assessments. The auction’s winner is the bidder who submits the highest bid. If there are many bidders and each bidder conducts independent value assessments, the average estimated value can reasonably …show more content…
M&M led in the first round of bidding but had cautiously evaluated its cognitive and emotional reasons for acquiring JLR brands. Though it was keen to acquire primarily the Land Rover brand, it had concerns over the supply of engines from Ford and feared the onset of new tighter European Union emission regulations, noting that neither of the two brands (Jaguar and Land Rover) had smaller fuel-efficient models in their product lines19. Given its scale of business, M&M also realised that it was not in a position to withstand an economic downturn20. Hence, in the second round of bidding, M&M did not bid beyond USD 1.9 billion to match higher bid (of USD 2.05 billion) from Tata Motors and pulled out of the race21. Indeed, the economic meltdown of 2008 adversely impacted JLR. Though Tata Motors was able to withstand the impact due to its deep pockets, the meltdown could have been devastating for M&M had it outbid Tata Motors and won the …show more content…
Though Tata Motors bid the highest in the auction, it had treaded cautiously and had gathered much information to ascertain the value of JLR to the Tata Group. It saw the acquisition an opportunity to expand its presence in the passenger car market beyond India and the clout necessary to compete with international players22. Tata Motors believed the acquisition to provide significant potential for revenue synergies, access to world-class engineering capability and avenues of strong relationship between Tata’s steel and motoring businesses thus promising long-term benefit for the Group. While traditional buyers saw more risks than opportunities, Tata saw a high (private) value in JLR23. Being aware that it was the preferred buyer by Ford and after cautiously evaluating its options, Tata Motors made Ford contribute about USD 600m to the JLR pension plans as well as agree on supply of various technologies and financing for the dealers and customers during a transitional period of up to 12 months. Tata Motors, thus effectively paid less than USD 1.7 billion which was very close to the generally estimated value of JLR at that time (Merrill Lynch had valued JLR around USD 1.5 billion)24 and seemingly lower than JLR’s true value estimated by Tata Motors for the Group. After an initial difficult period, JLR became the crown jewel