Winner’s Curse as Social Cost:The Experience of the 3G Mobile Licence Auctions

The bidder who wins at an auction may end up paying more for an asset than it is actually worth. This, stated very simply, is the so-called winner's curse. Consider the simplest possible case where the asset has the same actual value to all bidders, but bidders do not know for certain what that value is. If each bidder independently estimates the value of the asset with error, then the highest bidder will be the bidder who makes the largest positive error in his evaluation of the asset. That positive error is the winner's curse....