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Beware the Winner's CurseVictories that Can Sink You and Your Company$
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G. Anandalingam and Henry C. Lucas

Print publication date: 2004

Print ISBN-13: 9780195177404

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780195177404.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 05 March 2021

Origin of the Winner's Curse

Origin of the Winner's Curse

(p.3) 1 Origin of the Winner's Curse
Beware the Winner's Curse

G. Anandalingam (Contributor Webpage)

Henry C. Lucas

Oxford University Press

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.

Keywords:   auctions, overpayment, acquisitions, information asymmetry, competitive bidding

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