Two or more people who really want to buy the same thing, shamelessly raising their offers. That's a bidding war.
This can happen in an auction setting. Imagine two people furiously waving their paddles in the air, trying to secure a rare painting or a discontinued bottle of wine. "Do I hear one million...a million...do I hear two million...five million...ten million!"
Bidding wars often break out in hot real estate markets as well.
In a corporate setting, a bidding war can break out for an acquisition. Two pharma giants get interested in a smaller drug developer who just figured out the next best cure for baldness. They keep upping their offer to shareholders, usually until one finally reaches the end of its financial rope.
A bidding war almost always ends with someone overpaying for the asset. It's marked by a break down in reason, with people getting more interested in "winning the bidding war" in the sense of eventually obtaining the asset than "winning the bidding war" in the sense of getting out of the situation in a better financial position than when they started.
Related or Semi-related Video
Finance: What is Spread?48 Views
finance a la shmoop. what is spread? before we start just no. get your mind
out of the gutter. spread refers to the money value between [100 dollar bill]
a bid and ask price under a market maker structure of trading securities. no more
wire hangers, a plastic hanger company is publicly traded on an exchange like
Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]
trade. no more wire hangers is bid this moment at 37:23 a share by buyers
willing to buy right now at that price and is being asked at this moment at a
price of 37.31. note the eight cents a shared difference in the share prices.
that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]
extremely volatile stocks, the spread widens. and in boring highly liquid
stocks which don't move much, the spread tightens or is narrower. that is on a
volatile equivalent of no more wire hangers the spread might grow to 20 or
30 cents a share whereas a boring name that pays a big dividend and the stock
never moves much we're thinking AT&T here, [man snores at a desk]
well that spread might be just three or four cents. so why grow? well because a
market maker in a volatile stock doesn't want to be caught losing money on her
inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]
well it would be likely less than the average of what the market maker paid
for her quote "inventory" unquote in that stock from which he was making a market
in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]
pay their bills and allow them to keep doing business. so that's spread. and it's
not the type that Prince used to sing about. [man on stage]
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