Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - A “matching auction” for targets with heterogeneous bidders
AU - Dasgupta, Sudipto
AU - Tsui, Kevin
PY - 2003/10
Y1 - 2003/10
N2 - 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.
AB - 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.
KW - Takeovers
KW - Auctions
KW - Bidding
KW - Targets
KW - Toeholds
U2 - 10.1016/j.jfi.2003.08.003
DO - 10.1016/j.jfi.2003.08.003
M3 - Journal article
VL - 12
SP - 331
EP - 364
JO - Journal of Financial Intermediation
JF - Journal of Financial Intermediation
SN - 1042-9573
IS - 4
ER -