Why Do Sellers (Usually) Prefer Auctions?
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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