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Auctions with Endogenous Initiation

51 Pages Posted: 7 Aug 2017  

Alexander S. Gorbenko

University of Southern California - Marshall School of Business

Andrey Malenko

MIT Sloan School of Management

Date Written: August 4, 2017

Abstract

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

Gorbenko, Alexander S. and Malenko, Andrey, Auctions with Endogenous Initiation (August 4, 2017). Available at SSRN: https://ssrn.com/abstract=3014110

Alexander S. Gorbenko

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Andrey Malenko (Contact Author)

MIT Sloan School of Management ( email )

100 Main Street
E62-619
Cambridge, MA 02142
United States
617-225-9301 (Phone)

HOME PAGE: http://www.mit.edu/~amalenko

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