Private Value Takeover Auctions with Toeholds: An Experimental Study

Anna Dodonova and Yuri Khoroshilov
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Anna Dodonova: Telfer School of Management, University of Ottawa, 55 E. Laurier, Ottawa, ON K1N 6N5, Canada
Yuri Khoroshilov: Telfer School of Management, University of Ottawa, 55 E. Laurier, Ottawa, ON K1N 6N5, Canada

Games, 2021, vol. 12, issue 2, 1-10

Abstract: This paper presents the results of an experimental study of takeover auctions with toeholds. Consistent with the theory, we find a positive effect of toeholds on bidding. Such an effect, however, is of a lower magnitude and the bidding premium function has an opposite slope than the theory predicts, which can be attributed both to risk aversion and subjects’ tendency to think of their bids in relative terms. Consistent with the theory we find no cross-bidder toehold effect, however, such a result is inconsistent with the observed bidding function if people expect their opponents to behave the same way as they do.

Keywords: auction; takeover; toehold (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2021
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