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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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  1. Robert A. Mundell & Paul J. Zak, 2005. "Introduction," Chapters, in: International Monetary Policy after the Euro, chapter 1 Edward Elgar.
  2. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
  3. Kjerstad, E. & Vagstad, S., 2000. "Procurement Auctions with Entry of Bidders," Norway; Department of Economics, University of Bergen 215, Department of Economics, University of Bergen.
  4. Robert F. Easley & Rafael Tenorio, 2004. "Jump Bidding Strategies in Internet Auctions," Management Science, INFORMS, vol. 50(10), pages 1407-1419, October.
  5. Ruqu Wang, 1991. "Auctions Versus Posted-Price Selling," Working Papers 812, Queen's University, Department of Economics.
  6. Klemperer, Paul, 2000. "What Really Matters in Auction Design," CEPR Discussion Papers 2581, C.E.P.R. Discussion Papers.
  7. Olivier Compte & Philippe Jehiel, 2005. "Auctions and Information acquisition: Sealed-bid or Dynamic Formats?," Levine's Bibliography 784828000000000495, UCLA Department of Economics.
  8. David McAdams & Michael Schwarz, 2007. "Credible Sales Mechanisms and Intermediaries," American Economic Review, American Economic Association, vol. 97(1), pages 260-276, March.
  9. McAfee, R Preston, et al, 1993. "Collusive Bidding in Hostile Takeovers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 449-82, Winter.
  10. Yeon-Koo Che & Tracy R. Lewis, 2007. "The role of lockups in takeover contests," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 648-669, 09.
  11. Roger B. Myerson, 1982. "Two-Person Bargaining Problems with Incomplete Infonnation," Discussion Papers 527, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  13. repec:hal:journl:hal-00287137 is not listed on IDEAS
  14. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
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