 Auctions with toeholds: An experimental study of company takeoversSotiris Georganas and Rosemarie Nagel International Journal of Industrial Organization, 2011, vol. 29, issue 1, 34-45 Abstract: We run experiments on English Auctions where the bidders already own a part (toehold) of the good for sale. The theory predicts a very strong ("explosive") effect of even small toeholds. While asymmetric toeholds do have an effect on bids and revenues in the lab, which gets stronger the larger the asymmetry, it is not nearly as strong as predicted. We explain this by analyzing the flatness of the payoff functions, which leads to large deviations from the equilibrium strategies being relatively costless. This is a general fundamental weakness of this type of explosive equilibria, which makes them fail when human players are involved. Our analysis shows that a levels of reasoning model explains the results better where this equilibrium fails. Moreover, we find that although big toeholds can be effective in a takeover battle, the cost to acquire them might be higher than the strategic benefit they bring. Keywords: Experiments; Toehold; auction; Takeover; Payoff; flatness; Quantal; response; Level-k (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:29:y:2011:i:1:p:34-45 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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