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When are Auctions Best?

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  • Bulow, Jeremy I
  • Klemperer, Paul

Abstract

We compare the two most common bidding processes for selling a company or other asset when participation is costly to buyers. In an auction all entry decisions are made prior to any bidding. In a sequential bidding process earlier entrants can make bids before later entrants choose whether to compete. The sequential process is more efficient because entrants base their decisions on superior information. But pre-emptive bids transfer surplus from the seller to buyers. Because the auction is more conducive to entry in several ways it usually generates higher expected revenue.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6393.

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Date of creation: Jul 2007
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Handle: RePEc:cpr:ceprdp:6393

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Keywords: Auctions; Entry; Jump Bidding; Procurement; Sequential Sales;

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References

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Cited by:
  1. Gino Loyola, 2008. "Optimal takeover contests with toeholds," Economics Working Papers we083217, Universidad Carlos III, Departamento de Economía.

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