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Auctions with cross-shareholdings

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>07/2004
<mark>Journal</mark>Economic Theory
Issue number1
Number of pages32
Pages (from-to)163-194
Publication StatusPublished
<mark>Original language</mark>English


We study the effect of cross-shareholding among two competing firms
on their bidding behavior and the expected sales revenue for the seller in an auction environment. The bidders’ private signals are independent, and the model encompasses the private values model and a particular common value model as special cases. When cross-shareholding is symmetric, the bids decrease towards the collusive level as the degree of cross-shareholding increases. The Revenue Equivalence result no longer holds: the first-price auction generates higher expected revenue for the seller than the second-price auction.With asymmetric cross-shareholding, revenue comparisons are only possible in the common value setting. Expected revenue for the seller is again higher in the first-price than in the second price auction. Bidding behavior in the second-price auction is more sensitive to changes in cross-shareholding and the value environment than in the first-price auction.