Auctions vs. Negotiations

15 Pages Posted: 10 Aug 1999

See all articles by Jeremy Bulow

Jeremy Bulow

Stanford University; National Bureau of Economic Research (NBER)

Paul Klemperer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1993

Abstract

Which is the more profitable way to sell a company: a public auction or an optimally structured negotiation with a smaller number of bidders? We show that under standard assumptions, the public auction is always preferable, even if it forfeits all the seller's negotiating power, including the ability to withdraw the object from sale, provided that it attracts at least one extra bidder. An immediate public auction also dominates negotiating while maintaining the right to hold an auction subsequently with more bidders. The results hold for both the standard independent private values model and a common values model. They suggest that the value of negotiating skill is small relative to the value of additional competition.

JEL Classification: D44, G34

Suggested Citation

Bulow, Jeremy I. and Klemperer, Paul, Auctions vs. Negotiations (December 1993). Available at SSRN: https://ssrn.com/abstract=5866 or http://dx.doi.org/10.2139/ssrn.5866

Jeremy I. Bulow (Contact Author)

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Paul Klemperer

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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