Why Do Sellers (Usually) Prefer Auctions?
Bulow, Jeremy, and
Paul Klemperer. 2009. "Why Do Sellers (Usually) Prefer Auctions?."
American Economic Review,
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 to enter the bidding.
The sequential process is always more efficient. But preemptive 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. (JEL D44, G34, L13)
Article Full-Text Access
Bulow, Jeremy (Stanford U)
Klemperer, Paul (Nuffield College, U Oxford)
G34: Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
L13: Oligopoly and Other Imperfect Markets