Discussion paper

DP7411 Why Do Sellers (Usually) Prefer Auctions?

We compare the most common methods for selling a company or other asset when participation is costly: a simple simultaneous auction, and a sequential process in which potential buyers decide in turn whether or not to enter the bidding. The sequential process is always more efficient. But pre-emptive bids transfer surplus from the seller to buyers. Because the auction is more conducive to entry - precisely because of its inefficiency - it usually generates higher expected revenue. We also discuss the effects of lock-ups, matching rights, break-up fees (as in takeover battles), entry subsidies, etc.


Bulow, J and P Klemperer (2009), ‘DP7411 Why Do Sellers (Usually) Prefer Auctions?‘, CEPR Discussion Paper No. 7411. CEPR Press, Paris & London. https://cepr.org/publications/dp7411