Speculative Partnership Dissolution with Auctions

32 Pages Posted: 16 Sep 2011 Last revised: 27 May 2013

See all articles by Ludwig Ensthaler

Ludwig Ensthaler

Humboldt University of Berlin - School of Business and Economics; German Institute for Economic Research (DIW Berlin)

Thomas Giebe

Linnaeus University - Department of Economics and Statistics

Li Jianpei

University of International Business and Economics (UIBE)

Date Written: May 27, 2013

Abstract

The literature on partnership dissolution generally takes the dissolution decision as given and examines whether the outcome is efficient. A well-known result is that k 1-price auctions dissolve a partnership efficiently when the share structure is sufficiently close to equal. We extend the setup in two directions. First, we introduce complementarities by assuming a nontrivial continuation value of the partnership that is lost in case of dissolution. This makes inefficient breakups as well as continuation possible outcomes. Second, we assume that dissolution is not given, but must be triggered by a deliberate decision of at least one partner. This implies a signaling game, where calling for dissolution signals private information. We show that, in our extended setting, standard k 1-price auctions cannot dissolve a two-player equal-share partnership ex post efficiently. While allowing for veto or requiring consent does not help, adding a proper reserve restores efficiency.

Keywords: Partnership Dissolution, k 1 price Auctions, Efficiency

JEL Classification: C78, D23, D44, J12, L24

Suggested Citation

Ensthaler, Ludwig and Giebe, Thomas and Jianpei, Li, Speculative Partnership Dissolution with Auctions (May 27, 2013). Available at SSRN: https://ssrn.com/abstract=1927843 or http://dx.doi.org/10.2139/ssrn.1927843

Ludwig Ensthaler

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Thomas Giebe (Contact Author)

Linnaeus University - Department of Economics and Statistics ( email )

Växjö, 351 06
Sweden

Li Jianpei

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

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