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Why Do Sellers (Usually) Prefer Auctions?

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  • Bulow, Jeremy I.
  • Klemperer, Paul

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 or not to enter the bidding. The sequential process is always more efficient. But pre-emptive 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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7411.

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Date of creation: Aug 2009
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Handle: RePEc:cpr:ceprdp:7411

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Keywords: Auctions; entry; jump bidding; procurement; sequential sales;

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References

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Citations

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Cited by:
  1. 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.
  2. Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2014. "Competing with Asking Prices," Economics Working Papers we1411, Universidad Carlos III, Departamento de Economía.
  3. 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.
  4. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, vol. 82(C), pages 522-543.
  5. Calcagno, Riccardo & Falconieri, Sonia, 2014. "Competition and dynamics of takeover contests," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 36-56.
  6. Che, Xiaogang, 2009. "Internet auctions with a temporary buyout option," MPRA Paper 18444, University Library of Munich, Germany.
  7. Loyola, Gino, 2012. "Auctions vs. negotiations in takeovers with initial stakes," Finance Research Letters, Elsevier, vol. 9(3), pages 111-120.
  8. 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.
  9. Thomas Greve, 2011. "Multidimensional procurement auctions with unknown weights," Discussion Papers 11-23, University of Copenhagen. Department of Economics.
  10. : 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.
  11. 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.
  12. Charles J. Thomas, 2012. "An Alternating-Offers Model of Multilateral Negotiations," Working Papers 12-31, Chapman University, Economic Science Institute.
  13. Ronald Wolthoff & Lodewijk Visschers & Benjamin Lester, 2012. "Asking Prices and Inspection Goods," 2012 Meeting Papers 792, Society for Economic Dynamics.
  14. Che, XiaoGang, 2011. "Internet auctions with a temporary buyout option," Economics Letters, Elsevier, vol. 110(3), pages 268-271, March.
  15. 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.
  16. Wang, Hong, 2013. "Contingent payment auction mechanism in multidimensional procurement auctions," European Journal of Operational Research, Elsevier, vol. 224(2), pages 404-413.
  17. 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.
  18. 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.
  19. Benjamin Lester (Federal Reserve Bank of Philadelphia), Ludo Visschers (The University of Edinburgh & Universidad Carlos III, Madrid), Ronald Wolthoff (University of Toronto), 2014. "Competing with Asking Prices," ESE Discussion Papers 243, Edinburgh School of Economics, University of Edinburgh.

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