Why Do Sellers (Usually) Prefer Auctions?

Jeremy Bulow and Paul Klemperer

American Economic Review, 2009, vol. 99, issue 4, 1544-75

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. (JEL D44, G34, L13)

JEL-codes: D44 G34 L13 (search for similar items in EconPapers)
Date: 2009
Note: DOI: 10.1257/aer.99.4.1544
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Citations: View citations in EconPapers (100)

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Working Paper: Why Do Sellers (Usually) Prefer Auctions? (2009)
Working Paper: Why Do Sellers (Usually) Prefer Auctions? (2009)
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