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Preemptive bidding and Pareto efficiency in takeover auctions

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  • Dodonova, Anna

Abstract

This paper extends the Fishman (1988) model of preemptive jump bidding in private value takeover auction to auctions with common and affiliated values. We show that in the presence of a common value component, jump bidding equilibrium results in higher social surplus. Furthermore, we show that, under certain conditions, allowing for preemptive jump bidding in common value auctions results in ex-ante Pareto improvement.

Suggested Citation

  • Dodonova, Anna, 2017. "Preemptive bidding and Pareto efficiency in takeover auctions," Economics Letters, Elsevier, vol. 159(C), pages 214-216.
    • Handle: RePEc:eee:ecolet:v:159:y:2017:i:c:p:214-216
    DOI: 10.1016/j.econlet.2017.08.014
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    References listed on IDEAS

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    1. Dodonova, Anna, 2012. "Toeholds and signalling in takeover auctions," Economics Letters, Elsevier, vol. 117(2), pages 386-388.
    2. Betton, Sandra & Eckbo, B Espen, 2000. "Toeholds, Bid Jumps, and Expected Payoffs in Takeovers," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 841-882.
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    7. At, Christian & Morand, Pierre-Henri, 2008. "Jump bidding in ascending auctions: The case of takeover contests," Economics Letters, Elsevier, vol. 99(3), pages 458-460, June.
    8. Khoroshilov, Yuri, 2015. "An experimental study of signaling in auctions with a flexible reserve price," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 124-137.
    9. Dodonova, Anna & Khoroshilov, Yuri, 2014. "Can preemptive bidding in takeover auctions be socially optimal? Yes it can," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 34-47.
    10. David Ettinger & Fabio Michelucci, 2016. "Hiding Information in Open Auctions with Jump Bids," Economic Journal, Royal Economic Society, vol. 126(594), pages 1484-1502, August.
    11. Michael J. Fishman, 1988. "A Theory of Preemptive Takeover Bidding," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 88-101, Spring.
    12. Bradley, Michael, 1980. "Interfirm Tender Offers and the Market for Corporate Control," The Journal of Business, University of Chicago Press, vol. 53(4), pages 345-376, October.
    13. David Ettinger & Fabio Michelucci, 2016. "Hiding Information in Open Auctions with Jump Bids," Economic Journal, Royal Economic Society, vol. 126(594), pages 1484-1502, August.
    14. Hirshleifer, David, 1989. "Facilitation of Competing Bids and the Price of a Takeover Target," University of California at Los Angeles, Anderson Graduate School of Management qt2496649g, Anderson Graduate School of Management, UCLA.
    15. Jennings, Robert H & Mazzeo, Michael A, 1993. "Competing Bids, Target Management Resistance, and the Structure of Takeover Bids," The Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 883-909.
    16. Khoroshilov, Yuri, 2012. "Preemptive bidding in takeover auctions with affiliated values," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 395-401.
    17. Yuri Khoroshilov, 2015. "Signaling in Takeover Auctions with Flexible Reserve Price," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 36(8), pages 499-507, December.
    18. Yuri Khoroshilov & Anna Dodonova, 2014. "Preemptive Bidding in Takeover Auctions: An Experimental Study," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(3), pages 216-230, April.
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    Cited by:

    1. Fabio Michelucci, 2022. "Promoting Entry and Efficiency via Reserve Prices," Games, MDPI, vol. 13(4), pages 1-7, June.
    2. Dodonova, Anna & Khoroshilov, Yuri, 2020. "Preemptive bidding in common value takeover auctions: Social surplus and the target’s revenue," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).

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