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Why Do Sellers (Usually) Prefer Auctions?

  • Bulow, Jeremy I.
  • Klemperer, Paul

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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