Why Do Sellers (Usually) Prefer Auctions?

Authors: Bulow, Jeremy; Klemperer, Paul

Source: The American Economic Review, Volume 99, Number 4, September 2009 , pp. 1544-1575(32)

Publisher: American Economic Association

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Abstract:

We compare the most common methods for selling a company or other asset when participation is costly: a simple simultaneous auction, and a sequential process in which potential buyers decide in turn whether to enter the bidding. The sequential process is always more efficient. But preemptive bids transfer surplus from the seller to buyers. Because the auction is more conducive to entry—precisely because of its inefficiency—it usually generates higher expected revenue. We also discuss the effects of lock-ups, matching rights, break-up fees (as in takeover battles), entry subsidies, etc.

Document Type: Research article

DOI: http://dx.doi.org/10.1257/aer.99.4.1544

Publication date: 2009-09-01

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The American Economic Review is a general-interest economics journal. The journal is published quarterly and contains articles on a broad range of topics. Established in 1911, the AER is among the nation's oldest and most respected scholarly journals in the economics profession.
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