Another game frequently played in MBA strategy classes is the acquire a company game.The set-up of the game is as follows.Company A has only one asset,offshore oil leases.The expected profit from these leases is uniformly distributed between $0 and $100 million,so the expected value to company A is $50 million.Company B is thinking of acquiring Company A.Company B's management is more efficient than A's; specifically,the value of A's assets under B's management is 1.5 times greater.For example,the expected value of A's oil leases under B's management is 1.5 $50 million,or $75 million.Company B can submit a written bid to acquire Company A.A will review the bid,and accept or reject the offer after learning the value of the oil leases with certainty.
You are advising Company B on its potential acquisition of Company A.What is the optimal bid for Company B to submit?
A) Do not submit a bid
B) Bid $50 million
C) Bid $75 million
D) Bid $100 million

Question

Quizplus · Accepted Answer

If Company B submits a bid, Company A will only accept if the bid is higher than the actual value of the leases. Since the value is uniformly distributed between $0 and $100 million, any bid will likely be accepted only when the value is higher than the bid, leading to a loss for Company B. Therefore, the optimal strategy is not to submit a bid.

Another Game Frequently Played in MBA Strategy Classes Is the Acquire