Lotte may fall prey to ‘winner’s curse’

Recently in Incheon Airport new bids have been given to allow new businesses to operate in their ICN duty free zone, a popular shopping place for over fourteen million foreign tourists shopping that can bring as much as 8.3 trillion in revenue for duty free store operators together. Foreign conglomerate Lotte recently paid a ridiculous amount in total of 3.6 trillion dollars in the form of a bid for four out of the eight sections of the ICN. This is almost two and a half times what they bid last time for space in the ICN and will require over 720 billion annually to hold a profit. This exorbitant amount of money paid is expected to be a classic case of a winner’s curse; with a Lotte official admitting “It will take one or two years to know whether the bidding conditions were good or bad.” I believe this will be an example of winners curse because of the steep bidding seen by Lotte over what others considered to not be worth nearly as much. To put it in perspective, Hotel Shilla won three sections and paid a total of 1.32 trillion. This may never be an issue for Lotte but it certainly will remain to be seen for the coming years whether they made the right choice in bidding so high for the ICN duty free zone.

http://www.koreatimes.co.kr/www/news/biz/2015/02/123_173615.html

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1 thought on “Lotte may fall prey to ‘winner’s curse’”

  1. It looks like this company bids very high sums for duty free zones all over the world; in the last few days, they also entered a bid in the billions for a duty-free zone in an Italian airport. This looks like this Chinese airport could be their riskiest investment, and even if it is very profitable it will take many years to make up the crazy amount of money spent here. It does seem likely that they will face a winner’s curse.

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