Auctions with Endogenous Initiation
72 Pages Posted: 7 Aug 2017 Last revised: 23 Apr 2021
Date Written: April 23, 2021
We study initiation of auctions by potential buyers and the seller. A bidder's indication of interest reveals that she is optimistic about the asset. If bidders' values have a substantial common component, as in takeover battles between financial bidders, this effect disincentivizes bidders from indicating interest, and auctions are seller-initiated. Conversely, in private-value auctions, such as battles between strategic bidders, equilibria can feature both seller- and bidder-initiated auctions, with the likelihood of the latter decreasing in commonality of values and the probability of a forced sale by the seller. We also relate the initiating party to bids and auction outcomes.
Keywords: auctions of companies, auction design, mergers and acquisitions
JEL Classification: D44, G34
Suggested Citation: Suggested Citation