Why Negotiation with a Single Syndicate May Be Preferred to Making Syndicates Compete: The Problem of Trapped Bidders

Posted: 2 May 2000

See all articles by Naveen Khanna

Naveen Khanna

Michigan State University

Robert S. Hansen

Tulane University - A.B. Freeman School of Business

Abstract

We investigate the choice between hiring syndicates through competitive bidding and negotiation. Making syndicates compete can result in inferior terms because of inefficiencies like less effective search, possibly less total search, and trapped bidders. Empirical results are consistent with our hypothesis that purchasing syndicates search less under competition and that competition produces trapped bidders. The results also show that the primary market is rigidly divided under competition. When this occurs, total search under competitive bidding can be less than total search under negotiation. This may explain why competitive bidding is not favored in spite of its lower cost.

JEL Classification: D81, D82

Suggested Citation

Khanna, Naveen and Hansen, Robert S., Why Negotiation with a Single Syndicate May Be Preferred to Making Syndicates Compete: The Problem of Trapped Bidders. Available at SSRN: https://ssrn.com/abstract=5388

Naveen Khanna

Michigan State University ( email )

East Lansing, MI 48824-1121
United States
517-353-1853 (Phone)
517-432-1080 (Fax)

Robert S. Hansen (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

Goldring/Woldenberg Hall
7 McAllister Blvd.
New Orleans, LA 70118
United States
504-865-5624 (Phone)

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