Aceppting Late Bids?

 

Spirit Airlines’ bankruptcy has produced an unusual auction: Google agreed to pay $10 million for a trove of Spirit’s internal corporate data, including roughly 100 million emails and 500 million Microsoft Teams messages, beating a $7.5 million bid from AI firm Mercor. But after the auction closed, AI startup Micro1 offered $12.5 million, a sizable bump from Google’s bid. The bankruptcy court must now decide whether to consider the late offer. At first glance, the answer seems obvious. Spirit’s creditors want as much money as possible, so why not accept the higher bid?

Because changing the rules after an auction can affect bidding before the auction. A well-designed auction gives bidders confidence that deadlines and procedures are credible. If firms expect a losing bidder to get another chance after seeing the winning price, they have an incentive to hold back during the formal auction and wait to top the winner afterward. That can reduce competition and lower expected revenue in future auctions. Bidders on potential auctions for additional Spirit assets may adjust their bids downward. Conversely, rigidly rejecting a substantially higher late offer leaves money on the table today. There is an auction design tension because maximizing the highest observed bid is not necessarily the same as maximizing the seller’s expected revenue. Sometimes committing not to accept a better offer later can induce bidders to make better offers now.