Why Do Sellers (Usually) Prefer Auctions?

43 Pages Posted: 8 Feb 2009 Last revised: 2 Sep 2015

See all articles by Jeremy Bulow

Jeremy Bulow

Stanford University; National Bureau of Economic Research (NBER)

Paul Klemperer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 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, Sequential Sales, Procurement, Entry

JEL Classification: D44, G34, L13

Suggested Citation

Bulow, Jeremy I. and Klemperer, Paul, Why Do Sellers (Usually) Prefer Auctions? (January 1, 2009). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1329008

Jeremy I. Bulow

Stanford University ( email )

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National Bureau of Economic Research (NBER)

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Paul Klemperer (Contact Author)

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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