Working Paper: NBER ID: w13268
Authors: Jeremy I. Bulow; Paul D. 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.
Keywords: Auctions; Bidding Processes; Revenue Maximization; Sequential Entry
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 |
|---|---|
| auction process (D44) | higher expected revenue for sellers (D49) |
| sequential bidding process (D44) | lower expected revenue for sellers (D49) |
| auction process (D44) | more bidders (D44) |
| more bidders (D44) | higher expected revenue for sellers (D49) |
| sequential mechanisms (C69) | more informed entry (D83) |
| more informed entry (D83) | lower overall revenue for the seller (D49) |
| auction efficiency (D44) | higher revenue due to increased competition (D49) |