Auctions vs. Negotiations
Stanford University; National Bureau of Economic Research (NBER)
University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)
Which is the more profitable way to sell a company: a public auction or an optimally structured negotiation with a smaller number of bidders? We show that under standard assumptions, the public auction is always preferable, even if it forfeits all the seller's negotiating power, including the ability to withdraw the object from sale, provided that it attracts at least one extra bidder. An immediate public auction also dominates negotiating while maintaining the right to hold an auction subsequently with more bidders. The results hold for both the standard independent private values model and a common values model. They suggest that the value of negotiating skill is small relative to the value of additional competition.
Number of Pages in PDF File: 15
JEL Classification: D44, G34working papers series
Date posted: August 10, 1999
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