Security-bid Auctions with Information Acquisition

69 Pages Posted: 24 May 2021 Last revised: 2 Nov 2023

See all articles by Yunan Li

Yunan Li

City University of Hong Kong (CityU)

Zongbo Huang

The Chinese University of Hong Kong, Shenzhen

Date Written: January 22, 2023

Abstract

We study auctions in which buyers covertly acquire information at some cost and then bid securities contingent on the asset's realized value to them. In first- and second-price auctions, steeper securities lead to lower marginal returns to information and potentially lower revenues. We then consider the revenue-maximizing linear mechanism. The mechanism is efficient. The winner pays in cash if their expected values exceed a threshold and pays in stock otherwise. The threshold decreases as the marginal cost of acquiring information increases. Our empirical analysis supports the model's implications that stock payments are associated with lower takeover synergies and information costs.

Keywords: Information Acquisition, Securities, Auctions, Contingent Mechanisms

Suggested Citation

Li, Yunan and Huang, Zongbo, Security-bid Auctions with Information Acquisition (January 22, 2023). Available at SSRN: https://ssrn.com/abstract=3850243 or http://dx.doi.org/10.2139/ssrn.3850243

Yunan Li (Contact Author)

City University of Hong Kong (CityU) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Zongbo Huang

The Chinese University of Hong Kong, Shenzhen ( email )

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