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Why Do Sellers (Usually) Prefer Auctions?

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  • Jeremy Bulow
  • Paul Klemperer

Abstract

We compare the most common methods for selling a company or other asset when participation is costly: a simple simultaneous auction, and a sequential process in which potential buyers decide in turn whether to enter the bidding. The sequential process is always more efficient. But preemptive bids transfer surplus from the seller to buyers. Because the auction is more conducive to entry -- precisely because of its inefficiency -- it usually generates higher expected revenue. We also discuss the effects of lock-ups, matching rights, break-up fees (as in takeover battles), entry subsidies, etc. (JEL D44, G34, L13)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.4.1544
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 4 (September)
Pages: 1544-75

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:4:p:1544-75

Note: DOI: 10.1257/aer.99.4.1544
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References

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Citations

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Cited by:
  1. Audrey Hu & Theo Offerman & Liang Zou, 2014. "How Risk Sharing may enhance Efficiency in English Auctions," Tinbergen Institute Discussion Papers 14-015/I, Tinbergen Institute.
  2. Fidrmuc, Jana P. & Roosenboom, Peter & Paap, Richard & Teunissen, Tim, 2012. "One size does not fit all: Selling firms to private equity versus strategic acquirers," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 828-848.
  3. Calcagno, Riccardo & Falconieri, Sonia, 2014. "Competition and dynamics of takeover contests," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 36-56.
  4. Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with asking prices," Working Papers 13-07, Federal Reserve Bank of Philadelphia.
  5. Charles J. Thomas, 2012. "An Alternating-Offers Model of Multilateral Negotiations," Working Papers 12-31, Chapman University, Economic Science Institute.
  6. Che, XiaoGang, 2011. "Internet auctions with a temporary buyout option," Economics Letters, Elsevier, vol. 110(3), pages 268-271, March.
  7. Kevin Yili Hong & Alex Chong Wang & Paul A. Pavlou, 2013. "How does Bid Visibility Matter in Buyer-Determined Auctions? Comparing Open and Sealed Bid Auctions in Online Labor Markets," Working Papers 13-05, NET Institute.
  8. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, vol. 82(C), pages 522-543.
  9. Che, XiaoGang & Lee, Peter & Yang, Yibai, 2013. "The impact of resale on entry in second price auctions," Mathematical Social Sciences, Elsevier, vol. 66(2), pages 163-168.
  10. Loyola, Gino, 2012. "Auctions vs. negotiations in takeovers with initial stakes," Finance Research Letters, Elsevier, vol. 9(3), pages 111-120.
  11. : Jana P. Fidrmuc & Peter Roosenboom & Richard Paap & Tim Teunissen, 2012. "One size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers," Working Papers wpn12-02, Warwick Business School, Finance Group.
  12. Chia-Hui Chen & Junichiro Ishida, 2013. "Auctions Versus Negotiations: The Role of Price Discrimination," ISER Discussion Paper 0873, Institute of Social and Economic Research, Osaka University.
  13. Wang, Hong, 2013. "Contingent payment auction mechanism in multidimensional procurement auctions," European Journal of Operational Research, Elsevier, vol. 224(2), pages 404-413.
  14. Rosane Hungria-Gunnelin, 2013. "Impact of Number of Bidders on Sale Price of Auctioned Condominium Apartments in Stockholm," International Real Estate Review, Asian Real Estate Society, vol. 16(3), pages 274-295.
  15. Che, Xiaogang, 2009. "Internet auctions with a temporary buyout option," MPRA Paper 18444, University Library of Munich, Germany.
  16. Dai, Yun & Gryglewicz, Sebastian & Smit, Han T.J. & De Maeseneire, Wouter, 2013. "Similar bidders in takeover contests," Games and Economic Behavior, Elsevier, vol. 82(C), pages 544-561.
  17. Thomas Greve, 2011. "Multidimensional procurement auctions with unknown weights," Discussion Papers 11-23, University of Copenhagen. Department of Economics.
  18. Ronald Wolthoff & Lodewijk Visschers & Benjamin Lester, 2012. "Asking Prices and Inspection Goods," 2012 Meeting Papers 792, Society for Economic Dynamics.

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