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Why Do Sellers (Usually) Prefer Auctions?

  • Jeremy Bulow


    (Graduate School of Business, Stanford University, USA)

  • Paul Klemperer


    (Nuffield College, University of Oxford, Oxford, UK)

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 Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2009-W05.

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Length: 43 pages
Date of creation: 01 Jun 2009
Date of revision:
Handle: RePEc:nuf:econwp:0905
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