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Auctions with Endogenous Initiation

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  • ALEXANDER S. GORBENKO
  • ANDREY MALENKO

Abstract

We study initiation of takeover auctions by potential buyers and the seller. A bidder's indication of interest reveals that she is optimistic about the target. If bidders' values have a substantial common component, as in takeover battles between financial bidders, this effect disincentivizes bidders from indicating interest, and auctions are seller‐initiated. Conversely, in private‐value auctions, such as battles between strategic bidders, equilibria can feature both seller‐ and bidder‐initiated auctions, with the likelihood of the latter decreasing in commonality of values and the probability of a forced sale by the seller. We also relate initiation to bids and auction outcomes.

Suggested Citation

  • Alexander S. Gorbenko & Andrey Malenko, 2024. "Auctions with Endogenous Initiation," Journal of Finance, American Finance Association, vol. 79(2), pages 1353-1403, April.
    • Handle: RePEc:bla:jfinan:v:79:y:2024:i:2:p:1353-1403
    DOI: 10.1111/jofi.13288
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