Winner’s curse as social cost: the experience of the 3G Mobile Licence Auctions

Winner’s curse as social cost: the experience of the 3G Mobile Licence Auctions
Document type
Working Paper
Author(s)
Swann, G. M. Peter; Tether, Bruce S.
Publisher
Manchester Business School
Date of publication
29 March 2010
Subject(s)
Management & leadership: including strategy, public sector management, operations and production
Collection
Business and management
Material type
Reports

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The bidder who wins at an auction may end up paying more for an asset than it is actually worth. This, stated very simply, is the so-called winner's curse. Consider the simplest possible case where the asset has the same actual value to all bidders, but bidders do not know for certain what that value is. If each bidder independently estimates the value of the asset with error, then the highest bidder will be the bidder who makes the largest positive error in his evaluation of the asset. That positive error is the winner's curse.
Our aim in this paper is to take a careful look at the implications of the winner's curse for third parties. To help motivate the discussion, consider the radio-spectrum auction for rights to operate Third Generation (3G) telecommunications services, held in 2000.

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