51 Pages Posted: 7 Aug 2017
Date Written: August 4, 2017
We study strategic initiation of first-price auctions by potential buyers with changing valuations and the seller. This problem arises in auctions of companies and asset sales, among other contexts. The bidder's decision to approach the seller reveals that her valuation is high enough. In common-value auctions, such as battles between financial bidders, this revelation effect disincentivizes bidders from approaching the seller. In pure common-value auctions, no bidder ever approaches and auctions are seller-initiated. By contrast, in private-value auctions, such as battles between strategic bidders, the effect is the opposite, and equilibria often feature both seller- and bidder-initiated auctions. We link implications about the relation between the initiating party, bids, and auction outcomes to empirical evidence on auctions of companies.
Keywords: auctions of companies, auction design, mergers and acquisitions
JEL Classification: D44, G34
Suggested Citation: Suggested Citation
Gorbenko, Alexander S. and Malenko, Andrey, Auctions with Endogenous Initiation (August 4, 2017). Available at SSRN: https://ssrn.com/abstract=3014110