Why Do Sellers (Usually) Prefer Auctions?
46 Pages Posted: 8 Sep 2009
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Why Do Sellers (Usually) Prefer Auctions?
Date Written: August 2009
Abstract
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.
Keywords: Auctions, entry, jump bidding, procurement, sequential sales
JEL Classification: D44, G34, L13
Suggested Citation: Suggested Citation
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