Bidding War

  

Two or more people who really want to buy the same thing, shamelessly raising their offers. That's a bidding war.

This can happen in an auction setting. Imagine two people furiously waving their paddles in the air, trying to secure a rare painting or a discontinued bottle of wine. "Do I hear one million...a million...do I hear two million...five million...ten million!"

Bidding wars often break out in hot real estate markets as well.

In a corporate setting, a bidding war can break out for an acquisition. Two pharma giants get interested in a smaller drug developer who just figured out the next best cure for baldness. They keep upping their offer to shareholders, usually until one finally reaches the end of its financial rope.

A bidding war almost always ends with someone overpaying for the asset. It's marked by a break down in reason, with people getting more interested in "winning the bidding war" in the sense of eventually obtaining the asset than "winning the bidding war" in the sense of getting out of the situation in a better financial position than when they started.

Related or Semi-related Video

Finance: What is a hot issue?2 Views

00:00

Finance allah shmoop What is ah hot issue All right

00:07

Well it's one that has demanded more than it is

00:09

supplied One that is loved more than it is hated

00:13

One that is hot more thin it's gold Well the

00:16

most common hot issue in the press You read about

00:18

all the time Yeah It's an aipo that everybody wants

00:22

Why Well it's basically free money to the investors Price

00:27

talk has been ten to twelve dollars a share And

00:29

well then it looks like it's moved twelve to fifteen

00:31

and out price doc's fifteen to eighteen a share And

00:34

traders are mumbling that the first actual traded print will

00:38

be something like forty dollars a share So anyone who

00:41

buys at that eighteen dollars price or really any price

00:44

upto thirty thirty two thirty five something like that Well

00:47

they'll make a massive return for one day's work just

00:50

flipping their stock Tio you no longer term holders I

00:54

think about the real estate show where they flip houses

00:57

you know Well they have to do a whole lot

00:58

of work to flip a house on stocks are a

01:00

lot easier Well why do hot issues even happen Well

01:03

often banks purposely underprice i pose to quote pay the

01:08

street unquote for taking risk and buying that aipo handsomely

01:13

like they price it low Lots of people are going

01:15

to buy it have a low cost basis and remember

01:17

it fondly Well cos generally play along instead of selling

01:21

say thirty forty fifty percent of themselves to the public

01:24

in there i po well they only sell ten percent

01:27

and later on they'll sell more when the stock is

01:29

popped and traded and settled and has a buying public

01:32

and all the other good things that go with it

01:34

so and only a tiny amount of shares out there

01:36

trading even modest demand can drive prices to the sky

01:41

and this phenomenon happens Ah lot ebay snap facebook A

01:45

whole bunch of others essentially created hot issues by offering

01:49

very tiny fractions of ownership of themselves to the public

01:52

in there i po so that the enormous buyer interest

01:55

almost guarantees more demand than supply of the security being

01:59

sold and hot issues as you guess our great well 00:02:03.51 --> [endTime] until they're not

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