Aztar Corporation is an operator of casinos and hotels.

The company’s flagship properties are the Tropicana Hotel & Casino located in Las Vegas, Nevada, and in Atlantic City, New Jersey. In early 2006, Aztar’s common shares were trading at \($29\) per share. On March 12, 2006, Pinnacle Entertainment Inc. made a tender offer to buy all of Aztar’s outstanding common shares for \($38\) per share, a premium of 31 percent above Aztar’s market price. Two weeks later, Ameristar Casinos, Inc. made a competing tender offer to buy Aztar’s outstanding shares at a price of \($43\) per share. On April 15, 2006, Columbia Sussex Corporation made an unsolicited offer to buy Aztar at \($47\) per share, a premium of over 62 percent above Aztar’s share price before the bidding competition began. Then, on April 28, 2006, Pinnacle raised its bid to \($48\) per share, followed immediately by a \($50\) per share bid by Columbia Sussex.

Finally, on May 10, 2006, Pinnacle again raised its bid for Aztar to \($51\) per share, only to again be outbid by Columbia, which offered \($53\) per share. Some industry analysts described the bidding war for Aztar as an example of “The Winner’s Curse,” a situation in auction-like settings in which the winner is the entity that most overvalues the item being bid on, and thus, winning the final bid actually signals that the winner has lost as a consequence of overpaying for the item.

Discuss whether you think the Aztar bidding war is an example of The Winner’s Curse. Does the significantly higher bid by Columbia Sussex of \($53\) per share indicate that the market for Aztar’s common stock prior to the bidding war was inefficient? Why would Columbia Sussex be willing to pay such a significant premium (\($24\) per share) for Aztar’s shares?