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Preemptive bidding in takeover auctions with affiliated values

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  • Khoroshilov, Yuri

Abstract

This paper extends Fishman's (1988) model of preemptive bidding in takeover auctions to auctions with affiliated values. It shows that preemptive bidding transfers wealth from the seller to the first bidder without affecting the profit of the second bidder and social welfare. It also shows that higher correlation between bidders’ values leads to higher preemption rates but has an ambiguous effect on the size of the opening bid. Finally, it shows that in auctions with affiliated values, even infinitesimal entry costs may lead to a preemptive jump bidding that allows the reallocation of the entire surplus from the seller to the first bidder.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:quaeco:v:52:y:2012:i:4:p:395-401
    DOI: 10.1016/j.qref.2012.09.001
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    Cited by:

    1. Dodonova, Anna, 2017. "Preemptive bidding and Pareto efficiency in takeover auctions," Economics Letters, Elsevier, vol. 159(C), pages 214-216.
    2. Dodonova, Anna, 2013. "Preemptive bidding in takeover auctions with externality," Journal of Economics and Business, Elsevier, vol. 69(C), pages 35-44.
    3. 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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    More about this item

    Keywords

    Jump bidding; Takeover auction;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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