Title

A bluff-bidding exercise

Document Type

Article

Publication Date

4-1-2011

Abstract

Consider an auction in which one potential buyer wishes to participate, but the other potential buyer would rather the bidding not start. However, once bidding starts, the reluctant firm participates (submits bluff bids) simply to make the eventual winner pay more. This incentive exists when the marginal effect of the winning bid is to increase a rival's profit. In 2004, ATT Wireless placed itself for sale in an English auction. Some predicted Vodafone would make bluff bids (to make Cingular pay more. Students experience this sort of activity in the game that this article describes. Students also learn that bluff bidding affects profits of the firms involved and therefore has important implications for stock prices of participating firms. Copyright © Taylor &Francis Group, LLC.

Publication Name

Journal of Economic Education

Volume Number

42

First Page

168

Last Page

174

Issue Number

2

DOI

10.1080/00220485.2011.555719

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