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Why Do Sellers (Usually) Prefer Auctions?

  • Paul Klemperer
  • Jeremy Bulow

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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2009-W05.

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Date of creation: 01 Apr 2009
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Handle: RePEc:oxf:wpaper:2009-w05
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