The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities

Onur Koska, Ilke Onur and Frank Stähler

No 5256, CESifo Working Paper Series from CESifo

Abstract: We scrutinize the scope of auctions in the presence of downstream interactions and information externalities by using the topical example of a firm acquisition. We show that no mechanism exists that allows an investor to acquire a low-cost firm under incomplete information: a separating auction implies adverse selection and relies substantially on commitment to allocation and transfer rules. A pooling auction serves as a commitment device against ex-post opportunistic behavior and alleviates adverse selection. It can earn the investor a higher expected payoff than a separating auction, even when consistency is required as to qualify for a sequential equilibrium.

Keywords: takeover; auction; externality; incomplete information; commitment (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The scope of auctions in the presence of downstream interactions and information externalities (2018)
Working Paper: The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5256

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