Thursday, February 19, 2009

going once.. going twice...

I had the BEST strategy class today! It was so funny. But before I dive into that I need to give some background information on class this semester.

So we had a huge group project for Rolls-Royce last semester, this semester the group project's a bit smaller and has to do with mergers and acquisitions. We have to do research and write up a report on a pending deal, and then participate in actual negotiations next Tuesday. So these past couple of weeks, we've been hitting up cases really hard and practicing negotiating. One of the options that's usually open is putting up your company on an auction block -- this is banned from our project though. However, my awesome organizational behavior teacher conducted an in class stimulation regarding just why companies hate auctions so much.

The first auction was your regular open auction. My professor had a cup full of coins and started the bid at one dollar. We had to bid in increments of 10 cents, and off we went. One of my classmates won it for.. around $5 I believe. The actual value of the cup was around $7, lucky guy.

The second auction was a Dutch, closed auction. It was the first of its kind I'd ever seen. Everyone has to stay silent, and the first person to bid wins the item. The price starts at a pre set, high price, and then decreases at certain intervals of time. This time it was a Ziploc container of coins, and the price started at $20. I personally valued it at $7 because I saw a lot of pennies in it. However, a classmate pulled the trigger at $12. There was around $14 in the box, not bad!

The last auction was a.. hrm. I forgot the name. But the highest bidder and the second highest bidder would both pay, but only the highest bidder would get the item. This time it was a one dollar bill. So, one of my crazy classmates started off the bid at $1! While we were staring at him in shock, another evil classmate bid $1.01. Ooh boy, that guy would have the pay the $1 now. Someone else jumped in with the same intention, and for a while it seemed that it would end at $1.05, but I thought, eh. What the heck. I'll have some fun and go for it. So I bid against one of my friends. And we continued, going up in 1 cent increments for about one dollar, then she started going off at 50 cent increments, and I bit the bullet and bid $3 for a dollar bill. She stopped then because she'd known me since first year and knew me too well. Once I got in, I would win this thing. Hahaha.

Purpose of this class? Show how people can get caught up in the hype and how management makes bad decisions in bidding wars. This is also why people hate auctions for companies. 

That was pretty darned fun, but before my poor professor gets condemned for gambling, we weren't really paying for money. I wanted to honor my bid and pay her the two dollars, but alas and alack, my check was refused as she was only joking about playing for real money. Brilliant woman. She deserves tenure.