Potential heterogeneity in target’s value and jump bidding in takeover auctions

Anna Dodonova and Yuri Khoroshilov

Applied Economics Letters, 2019, vol. 26, issue 12, 1038-1043

Abstract: This ticle analyses the pre-emptive jump bidding equilibrium in takeover auctions when bidders’ valuations of the target firm follow truncated normal distribution. It shows that potential heterogeneity of the targets’ value, measured by the standard deviation of the bidders’ valuation function, is especially important when it is small and, for extremely small values, the second bidder is almost always pre-empted. It also shows that, contrary to regular clock-style auctions, the increase in standard deviation may negatively affect the expected profit of the first bidder.

Date: 2019
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DOI: 10.1080/13504851.2018.1529388

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