The scope of auctions in the presence of downstream interactions and information externalities

Onur Koska, Ilke Onur and Frank Stähler

Journal of Economics, 2018, vol. 125, issue 2, No 1, 107-136

Abstract: Abstract We scrutinize the scope of auctions for firm acquisitions in the presence of downstream interactions and information externalities. 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: 2018
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities (2016)
Working Paper: The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:125:y:2018:i:2:d:10.1007_s00712-017-0590-0

DOI: 10.1007/s00712-017-0590-0

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