|The "takeover game" is a situation in which one person
makes a bid to acquire an object (e.g. a business) owned by the other. The
object's basic profitability is only known by the owner.
The bidder is a better manager and has a higher value per unit of quality, so
economic efficiency would increase with a sale. The bidder
makes a single take-it-or-leave-it bid. If the bid is accepted,
the owner earns the bid amount, and the bidder
earns the value of the quality of the acquired object. If the
bid is rejected, the bidder earns nothing, and the owner earns the (lower) value
of the quality of the object.
| || || || || ||There is a potential "buyer's curse" since low-quality
units are more likely to be sold, and hence the bidder may end up
paying too much, even though it is worth more to the bidder
than to the current owner.
The takeover game highlights issues of bidding
strategy and asymmetric information. The default setup (suggested
by Jim Leady of Notre Dame) inovlves a role reversal in
the second treatment, so that students can see things from both perspectives.|
Vecon Lab - December 4, 2023