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The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities

Onur Koska (), Ilke Onur () and Frank Stähler ()

No 1611, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: TWe scrutinize the scope of auctions for firm acquisitions in the presence of downstream interactions and information externalities. We Show that no mechanism exists that allows an investor to acquire a low-cost firm under incomplete information: a separating auction implies adverse selection and relies substantially on commitment to allocation and transfer rules. A pooling auction serves as a commitment device against ex-post opportunistic behavior and alleviates adverse selection. It can earn the investor a higher expected payoff than a separating auction, even when consistency is required as to qualify for a sequential equilibrium.

Keywords: Takeover; Auction; Externality; IncompleteInformation; Commitment (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2016-09, Revised 2016-09
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http://erc.metu.edu.tr/en/system/files/menu/series16/1611.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: The scope of auctions in the presence of downstream interactions and information externalities (2018) Downloads
Working Paper: The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities (2015) Downloads
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