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Lessons from a Failed Airline Auction

  • J. Patrick Meister
  • Kyle J. Anderson
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    In 1995, USAir placed itself for sale in an English auction. Interestingly, no bids were placed. This does not imply that the available firm is not a valuable acquisition. If losing reduces profits, firms wish to avoid a profit-reducing bidding war. However, in a sealed-bid auction (with no credible nonparticipation commitments), firms place profit-reducing bids in equilibrium. Also, a novelty of our analysis is the specification of the loser's profit rising with the price that the winner pays. This highlights an important explanation of bidding wars because a firm may bid simply to make the eventual winner pay a higher price. (JEL L1, L9) Copyright 2006, Oxford University Press.

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    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 44 (2006)
    Issue (Month): 2 (April)
    Pages: 311-317

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    Handle: RePEc:oup:ecinqu:v:44:y:2006:i:2:p:311-317
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