The scope of auctions in the presence of downstream interactions and information externalities

Onur A. Koska, Ilke Onur, Frank Stähler

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

We 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.

Original languageEnglish
Pages (from-to)107-136
Number of pages30
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Volume125
Issue number2
DOIs
Publication statusPublished - 1 Oct 2018
Externally publishedYes

Keywords

  • Auction
  • Commitment
  • Externality
  • Incomplete information
  • Takeover

Fingerprint Dive into the research topics of 'The scope of auctions in the presence of downstream interactions and information externalities'. Together they form a unique fingerprint.

Cite this