Working Paper: CEPR ID: DP6393
Authors: Jeremy I. Bulow; Paul Klemperer
Abstract: We compare the two most common bidding processes for selling a company or other asset when participation is costly to buyers. In an auction all entry decisions are made prior to any bidding. In a sequential bidding process earlier entrants can make bids before later entrants choose whether to compete. The sequential process is more efficient because entrants base their decisions on superior information. But pre-emptive bids transfer surplus from the seller to buyers. Because the auction is more conducive to entry in several ways it usually generates higher expected revenue.A substantially revised version of this paper has been published as CEPR DP7411.
Keywords: auctions; entry; jump bidding; procurement; sequential sales
JEL Codes: D44; G34; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auctions (D44) | higher expected revenue for sellers (D49) |
| fewer potential bidders (D44) | maximum expected revenue (D41) |
| jump bidding (D44) | expected profits at seller's expense (D41) |
| greater dispersion in winners' values (D39) | higher expected values (D46) |
| higher expected values (D46) | greater entry and competition (L13) |
| greater entry and competition (L13) | increased seller profits (D40) |
| sequential mechanisms efficiency (C69) | lower revenue generation (H27) |