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

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2018-10-01

Author

Koska, Ahmet Onur
Onur, Ilke
Staehler, Frank

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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.

Subject Keywords

Economics and Econometrics, General Business, Management and Accounting

URI

https://hdl.handle.net/11511/56653

Journal

JOURNAL OF ECONOMICS

DOI

https://doi.org/10.1007/s00712-017-0590-0

Collections

Department of Economics, Article

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Citation Formats

A. O. Koska, I. Onur, and F. Staehler, “The scope of auctions in the presence of downstream interactions and information externalities,” JOURNAL OF ECONOMICS, pp. 107–136, 2018, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/56653.