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Private Value Takeover Auctions with Toeholds: An Experimental Study

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  • Anna Dodonova

    (Telfer School of Management, University of Ottawa, 55 E. Laurier, Ottawa, ON K1N 6N5, Canada)

  • Yuri Khoroshilov

    (Telfer School of Management, University of Ottawa, 55 E. Laurier, Ottawa, ON K1N 6N5, Canada)

Abstract

This paper presents the results of an experimental study of takeover auctions with toeholds. Consistent with the theory, we find a positive effect of toeholds on bidding. Such an effect, however, is of a lower magnitude and the bidding premium function has an opposite slope than the theory predicts, which can be attributed both to risk aversion and subjects’ tendency to think of their bids in relative terms. Consistent with the theory we find no cross-bidder toehold effect, however, such a result is inconsistent with the observed bidding function if people expect their opponents to behave the same way as they do.

Suggested Citation

  • Anna Dodonova & Yuri Khoroshilov, 2021. "Private Value Takeover Auctions with Toeholds: An Experimental Study," Games, MDPI, vol. 12(2), pages 1-10, May.
    • Handle: RePEc:gam:jgames:v:12:y:2021:i:2:p:40-:d:549380
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    References listed on IDEAS

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    Keywords

    auction; takeover; toehold;
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