American Economic Review Vol. 99 No. 4 2009

Why Do Sellers (Usually) Prefer Auctions?

Jeremy Bulow¹; Paul Klemperer²

¹ Graduate School of Business, Stanford University, Stanford, CA 94305-5015. · ² Nuffield College, University of Oxford, Oxford OX1 1NF, United Kingdom.

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.

DOI

10.1257/aer.99.4.1544

Volume

99

Issue

4

Pages

1544-1575

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓