A “matching auction” for targets with heterogeneous bidders |
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Authors: | Sudipto Dasgupta Kevin Tsui |
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Affiliation: | a Department of Finance, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong;b Department of Economics, University of Chicago, Chicago, IL, USA |
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Abstract: | When potential bidders for a target firm are heterogeneous, standard auction methods for selling the firm are not optimal, as they treat the bidders symmetrically. In a two-bidder contest, one way to discriminate against the stronger bidder is to impose an order of moves. A simple “matching auction” can achieve this objective, in which the “strong” bidder is asked to make a first and final offer, and the other bidder is asked to match this bid. We consider two sources of bidder heterogeneity in a common-value setting: differences in initial toeholds, and asymmetric effects of the bidders' private signals on value. The matching auction results in a higher expected selling price than the standard auctions when the asymmetry is sufficiently large. Other properties of the matching auction are discussed. |
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Keywords: | Takeovers Auctions Bidding Targets Toeholds |
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