A Classroom Auction With Externalities: Applied to Mergers and Acquisitions

J. Patrick Meister and Kyle J. Anderson

The Journal of Economic Education, 2007, vol. 38, issue 3, 297-307

Abstract: The authors describe an in-class exercise in which students participate in an auction to buy US Airways. The exercise is based on events of late 1995, in which neither United nor American Airlines decided to bid for US Airways. Two teams of students participate in an English auction. Students learn that the equilibrium of the sequential game is that neither firm bid and, thereby, learn why US Airways did not sell at that time. In addition, two other teams participate in a sealed-bid auction, in which US Airways will sell in Nash equilibrium. Results typically have lined up with theoretical predictions.

Date: 2007
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DOI: 10.3200/JECE.38.3.297-307

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