The Auction for Sky Sports
This article describes the situation that Sky Sports was in about a month ago. It had Comcast and Fox bidding to buyout the company. They had been making bids and counter bids for a few months already so the UK regulators decided to put an end to it by setting up a final auction to buy Sky Sports. The auction is set up with three rounds. In the first round only Fox can bid since their bid is currently less than Comcast’s bid. Then in the second round Comcast can place a counter bid. Finally, in the third rounds each side submits a secret bid and the winner is determined by whoever bids higher.
So in the end this auction process becomes a first price sealed bid auction. That means that the best move for each side isn’t necessarily to bid their true value because one side could have a much lower value than the other. So then if the side with the higher value bid their true value, they would be overpaying. However, the addition of rounds before the final round adds a twist to the auction which allows for some additional strategies. Normally a side would try to determine what the other side’s value is and make a calculated risk-reward trade off for where to bid between their true value and the other side’s perceived value. With the additional rounds before the final round, each side can try to deceive the other on their true value. A side could bid just over the other’s bid to try to imply that they are near their true value and can’t bid much more. A side could also make a much larger bid just under their true value to suggest to the other side that the current bid is nowhere near their true value. Both these strategies could potentially make the a side misjudge the other’s true value and then either underbid and lose or overbid and overpay for Sky Sports.
The other interesting difference between this situation and a normal first price sealed bid auction is that Fox already own part of Sky Sports. This means that Fox actually has competing incentives. On one hand they want to win the auction with the lowest bid possible. On the other hand they want to maximize the value of Sky Sports that they already own. This suggests that Fox would be inclined to bid on the higher side closer to their true value. That way even if they lose, the share they already own will be valued at a higher price. All of these extra conditions makes this an exciting auction to watch.