Beware the Winner's Curse: Victories That Can Sink You and Your Company

Overview

In the roaring 1990s, many companies seemed to claim great victories-acquiring another company, obtaining state-of-the art technology, or hiring a potential CEO savior-only to find that they had made a great mistake. The term "Winner's Curse" was coined by economists to explain an effect commonly observed in auctions. In such situations, since the winning bidder is usually the most optimistic about the value of the item being auctioned, there is a very good chance that the bid will be more (sometimes much more) ...

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Overview

In the roaring 1990s, many companies seemed to claim great victories-acquiring another company, obtaining state-of-the art technology, or hiring a potential CEO savior-only to find that they had made a great mistake. The term "Winner's Curse" was coined by economists to explain an effect commonly observed in auctions. In such situations, since the winning bidder is usually the most optimistic about the value of the item being auctioned, there is a very good chance that the bid will be more (sometimes much more) than the item is worth. So a company that overvalues a good or service, or bids higher than its value has the potential of experiencing this Winner's Curse.
In this book, G. Anandalingam and Henry C. Lucas, Jr. expand the model of the Winner's Curse to explain how companies like Tyco, MCI-WorldCom and Bank One overpaid for acquisitions, and how shareholders suffered as a result. They elucidate the disasters that happened during the rush to acquire new technologies and illuminate the reasons that companies that were seemingly pioneers in the dot-com era fell by the wayside. Beginning by exploring the psychological, personal and market factors that can encourage a decision maker to overvalue an asset and experience the Winner's Curse, the book goes on to examine several case studies, including the disastrous wireless spectrum auctions that have devastated the telecommunications industry, and the dot-com bust. It concludes by discussing ways to avoid the Winner's Curse, calling for major changes in the behavior of CEOs and members of boars of directors, as well as the use of powerful techniques for analyzing decisions, including a systems approach to decision making, scenario analysis and game theory.

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Editorial Reviews

From the Publisher
"In this book, the authors have used an interesting approach in teaching some of the lessons learned in the technology downturn of the early twenty-first century. Beware the Winner's Curse gives us alternative ways of thinking of asset values before we overpay for these assets." -Joseph J. Bonocore, President & CEO, Impresa Technologies, Inc.

"Beware the Winner's Curse is a brutally honest review of how often investors lose money when management pursues winning at almost any cost. The authors present abundant examples of corporate hubris that should send shivers down the spine of any director serious about protecting shareowner interests." -Harvey Seegers, former CEO, Global Exchange Services

"Beware the Winner's Curse is an excellent guide for executives who frequently bid on commercial projects. More than a caution against a reckless pursuit of every opportunity, this book provides a model and a framework to systematically evaluate each situation on its own merit. Every executive who wants to deploy his resources effectively should read this book." -William E. Steele, Chairman and CEO, Kencast

"Anandalingam and Lucas provide an excellent analysis and a critical redefinition of the concept of winning. They seriously question conventional thinking, and provide important ideas for all persons involved in both operational and strategic aspects of a business." —Joseph Vithayathil, CEO, Big Sur Communications

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Product Details

  • ISBN-13: 9780195177404
  • Publisher: Oxford University Press
  • Publication date: 11/4/2004
  • Pages: 256
  • Product dimensions: 9.20 (w) x 6.30 (h) x 0.90 (d)

Meet the Author

both at the Robert H. Smith School of Business, University of Maryland
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Table of Contents

Part I. The Winner's Curse
1. Origin of the Winner's Curse
2. The Spectrum Auction Fiasco
Part II: How Psychological and Market Factors Promote the Winner's Curse
3. Hubris, and the Urge to Merge and Acquire
4. The Curse Can Appear Anywhere
5. The Mad Scramble to Acquire Optical Technology
6. Dot-coms: On Top of the World for a While
7. Winners and Losers in the Securities Industry
8. Complacency in the Computer Industry
Part III: How Does One Avoid the Winner's Curse?
9. Winning is Not Everything
10. Avoiding the Winner's Curse

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