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Lessons from a Failed Airline Auction

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  • J. Patrick Meister
  • Kyle J. Anderson

Abstract

In 1995, USAir placed itself for sale in an English auction. Interestingly, no bids were placed. This does not imply that the available firm is not a valuable acquisition. If losing reduces profits, firms wish to avoid a profit-reducing bidding war. However, in a sealed-bid auction (with no credible nonparticipation commitments), firms place profit-reducing bids in equilibrium. Also, a novelty of our analysis is the specification of the loser's profit rising with the price that the winner pays. This highlights an important explanation of bidding wars because a firm may bid simply to make the eventual winner pay a higher price. (JEL L1, L9) Copyright 2006, Oxford University Press.

Suggested Citation

  • J. Patrick Meister & Kyle J. Anderson, 2006. "Lessons from a Failed Airline Auction," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 311-317, April.
    • Handle: RePEc:oup:ecinqu:v:44:y:2006:i:2:p:311-317
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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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