Auctions with Endogenous Initiation

59 Pages Posted: 7 Aug 2017 Last revised: 30 Aug 2022

See all articles by Alexander S. Gorbenko

Alexander S. Gorbenko

University College London - Department of Economics and School of Management

Andrey Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR)

Date Written: August 30, 2022

Abstract

We study initiation of takeover auctions by potential buyers and the seller. A bidder's indication of interest reveals that she is optimistic about the target. 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 initiation to bids and auction outcomes.

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 30, 2022). Available at SSRN: https://ssrn.com/abstract=3014110 or http://dx.doi.org/10.2139/ssrn.3014110

Alexander S. Gorbenko

University College London - Department of Economics and School of Management ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

Andrey Malenko (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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