IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/4608.html
   My bibliography  Save this paper

Auctions vs. Negotiations

Author

Listed:
  • Jeremy Bulow
  • Paul Klemperer

Abstract

Which is the more profitable way to sell a company: a public auction or an optimally structured negotiation with a smaller number of bidders? We show that under standard assumptions the public auction is always preferable, even if it forfeits all the seller's negotiating power, including the ability to withdraw the object from sale, provided that it attracts at least one extra bidder. An immediate public auction also dominates negotiating while maintaining the right to hold an auction subsequently with more bidders. The results hold for both the standard independent private values model and a common values model. They suggest that the value of negotiating skill is small relative to the value of additional competition.

Suggested Citation

  • Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4608
    Note: CF
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w4608.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    2. McAfee, R Preston & Vincent, Daniel, 1992. "Updating the Reserve Price in Common-Value Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 512-518, May.
    3. Hirshleifer, David & Titman, Sheridan, 1990. "Share Tendering Strategies and the Success of Hostile Takeover Bids," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 295-324, April.
    4. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    5. Bulow, Jeremy & Klemperer, Paul, 1994. "Rational Frenzies and Crashes," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 1-23, February.
    6. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    7. Engelbrecht-Wiggans Richard, 1993. "Optimal Auctions Revisited," Games and Economic Behavior, Elsevier, vol. 5(2), pages 227-239, April.
    8. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    9. Holmstrom, Bengt & Nalebuff, Barry, 1992. "To the Raider Goes the Surplus? A Reexamination of the Free-Rider Problem," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 37-62, Spring.
    10. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    11. Christopher Avery, 1998. "Strategic Jump Bidding in English Auctions," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 185-210.
    12. Shleifer, Andrei & Vishny, Robert W, 1988. "Value Maximization and the Acquisition Process," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 7-20, Winter.
    13. Harris, Milton & Raviv, Artur, 1988. "Corporate control contests and capital structure," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 55-86, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
    2. Olivier Compte & Philippe Jehiel, 2007. "Auctions and information acquisition: sealed bid or dynamic formats?," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 355-372, June.
    3. Ken Binmore & Paul Klemperer, 2002. "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences," Economic Journal, Royal Economic Society, vol. 112(478), pages 74-96, March.
    4. Cramton, Peter & Schwartz, Jesse A, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Journal of Regulatory Economics, Springer, vol. 17(3), pages 229-252, May.
    5. Klemperer, Paul, 2000. "Why every Economist should Learn some Auction Theory," CEPR Discussion Papers 2572, C.E.P.R. Discussion Papers.
    6. Roberto Burguet, 2000. "Auction theory: a guided tour," Investigaciones Economicas, Fundación SEPI, vol. 24(1), pages 3-50, January.
    7. Michael Peters, 1997. "Surplus Extraction and Competition," Working Papers peters-97-02, University of Toronto, Department of Economics.
    8. Lawrence M. Ausubel & Peter Cramton, 1998. "The Optimality of Being Efficient," Papers of Peter Cramton 98wpoe, University of Maryland, Department of Economics - Peter Cramton, revised 18 Jun 1999.
    9. Vasiliki Skreta, 2007. "On the Informed Seller Problem: Optimal Information Disclosure," Levine's Bibliography 843644000000000222, UCLA Department of Economics.
    10. Michael Peters, 1999. "Competition among mechanism designers in a common value environment," Review of Economic Design, Springer;Society for Economic Design, vol. 4(3), pages 273-292.
    11. Boeheim, Rene & Zulehner, Christine, 1996. "Auctions - A Survey," Economics Series 39, Institute for Advanced Studies.
    12. Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998.
    13. Vlad Mares & Ronald Harstad, 2007. "Ex-post full surplus extraction, straightforwardly," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 399-410, August.
    14. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
    15. Tim Grebe & Radosveta Ivanova-Stenzel & Sabine Kröger, 2009. "Buy-it-Now Prices in eBay Auctions-The Field in the Lab," Cahiers de recherche 0950, CIRPEE.
    16. Klemperer, Paul, 2002. "Some Observations on the British and German 3G Telecom Auctions," CEPR Discussion Papers 3605, C.E.P.R. Discussion Papers.
    17. World Bank, 2003. "Unsolicited Proposals : The Issues for Private Infrastructure Projects," World Bank Other Operational Studies 11305, The World Bank.
    18. Miguel Vazquez & Michelle Hallack, 2017. "Efficiency versus transaction costs in multidimensional auctions: the case of Brazilian oil and gas lease auctions," IEFE Working Papers 94, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    19. McAfee, R. Preston & Vincent, Daniel, 1997. "Sequentially Optimal Auctions," Games and Economic Behavior, Elsevier, vol. 18(2), pages 246-276, February.
    20. Koc, Umit & Erdogdu, Oya Safinaz, 2005. "Türk Telekom A.Ş.’nin Özelleştirilmesi: Oyun Teorisi Perspektifinden Bir Değerlendirme
      [Privatization of Turkish Telecom Company: An Assessment from Game Theory Perspective]      ," MPRA Paper 72143, University Library of Munich, Germany, revised Dec 2004.
    21. Alexander Galetovic & Juan Ricardo Inostroza, 2004. "Transmisión eléctrica y la “ley corta”: por qué licitar es (mucho) mejor que regular (Electricity transmission and the short law: why offering for tender is [much] better than regulation)," Documentos de Trabajo 177, Centro de Economía Aplicada, Universidad de Chile.
    22. Quintero Jaramillo, Jose E., 2004. "Liquidity constraints and credit subsidies in auctions," DEE - Working Papers. Business Economics. WB wb040604, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4608. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.