The scope of auctions in the presence of downstream interactions and information externalities

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KOSKA A. O., Onur I., Staehler F.

JOURNAL OF ECONOMICS, cilt.125, sa.2, ss.107-136, 2018 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 125 Sayı: 2
  • Basım Tarihi: 2018
  • Doi Numarası: 10.1007/s00712-017-0590-0
  • Dergi Adı: JOURNAL OF ECONOMICS
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.107-136
  • Orta Doğu Teknik Üniversitesi Adresli: Evet

Özet

We scrutinize the scope of auctions for firm acquisitions in the presence of downstream interactions and information externalities. We show that no mechanism exists that allows an investor to acquire a low-cost firm under incomplete information: a separating auction implies adverse selection and relies substantially on commitment to allocation and transfer rules. A pooling auction serves as a commitment device against ex-post opportunistic behavior and alleviates adverse selection. It can earn the investor a higher expected payoff than a separating auction, even when consistency is required as to qualify for a sequential equilibrium.