DP1682 Almost Common Value Auctions: The 'Wallet Game' and its Applications to Takeover Battles and Airwaves Auctions
|Publication Date:||August 1997|
|Keyword(s):||Airwaves Auction, Auction Theory, Common Values, Corporate Acquisitions, Mergers, PCS Auction, Spectrum Auction, Takeovers, Winner's Curse|
|JEL(s):||D44, G34, L96|
|Programme Areas:||Financial Economics, Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1682|
We use a classroom game, the ?Wallet Game?, to show that in standard ascending, i.e. English, auctions of close-to-common-values objects, even slight asymmetries between bidders can have very large effects on prices. Examples of small asymmetries are a small value advantage for one bidder or a small ownership of the object by one bidder; the effects of these asymmetries are greatly exacerbated by entry costs or bidding costs. We discuss applications to airwaves auctions and takeover battles including the Glaxo-Wellcome merger.