Game theory may help Tatas encounter CSN

Two prominent Indian steel companies, Tata Steel and Companhia Siderurgica Nacional (CSN) , are amidst a raging bid battle for Corus. Principles of game theory are drawn from both sides as each company devises its own strategy in the ascending bid auction that this business interaction has turned into. Tata’s strategy is simply to continue increasing its bids in small increments until the other companies drop out or it reaches its value. Unlike a private, individual ascending bid auction, however, Tata must consider the additional factor that the price of their bid may eventually destroy the combined stock price and perhaps force them to scamper for leverage in funding the transaction. CSN, on the other hand, must decide if Corus is worth the extra bid price synergistically.

The strategies of the two companies are obviously contingent upon the basic structures of game theory discussed in class, that following an ascending bid auction, the parties’ best strategy is to bid their respective true values in the auction. What’s interesting about this case is that it is presented in a business context where the “value” that, for example, a contending company places on another company must be considered with the weight of synergism and the possible effects on its own stock value along with those of the rival companies. Alternately, the lingering tragedy of the “winner’s curse” is very real in light of failing options coupled with “winning” the auction itself. In addition, its ultimate goal is to outdo its competition in business so opportunities to effectively cripple rival finances are not overlooked. In short, each company has the potential to guess at opposing companies strategies in business outside of the auction itself to determine how far to push a bid, thus creating great complications on top of the basic rules of game theory.