A common problem that is associated with a setting of competitive bidding (and broadly, multiparty negotiations, and the so-called negotiauctions– i.e., deals that have elements of a negotiation and an auction), where the party, who wins an auction involving an item of uncertain value in presence (with participation) of a fair number of bidders, ends up paying more than actual value of the item (a case known as overbidding). In such a situation, the item (asset or commodity, etc.), subject-matter of bidding, has no sentimental value– that is, it is not a “private value asset“, but rather a “common value asset“.

Common-value assets (e.g., a jar of coins) have – and should have- equal value to all bidders, even if it’s uncertain how profitable (or value creating) it will be to the “ultimate” winner. The winner’s curse in auctions involving such assets can pose a serious risk, particularly in high-stake deals such as mergers-and-acquisitions (M&A) deals and procurement auctions.