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Optimal equity auctions with two-dimensional types
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Liu, Tingjun and Bernhardt, Dan (2019) Optimal equity auctions with two-dimensional types. Journal of Economic Theory, 184 . 104913. doi:10.1016/j.jet.2019.06.009 ISSN 0022-0531.
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Official URL: https://doi.org/10.1016/j.jet.2019.06.009
Abstract
We analyze the design and performance of equity auctions when bidder's valuations and opportunity costs are private information, distributed according to an arbitrary joint density that can differ across bidders. We identify, for any incentive compatible mechanism, an equivalent single-dimensional representation for uncertainty. We then characterize the revenue-maximizing and surplus-maximizing equity mechanisms, and compare revenues in optimal equity and cash auctions. Unlike in cash auctions, the adverse selection arising from bidders' two-dimensional types in equity auctions can lead to a global violation of the regularity condition, which represents a maximal mismatch between incentive compatibility and maximization of revenue or surplus. Such mismatch can lead a seller to exclude bidders and demand a bidder-specific stake from a non-excluded bidder, providing insights into when a firm should employ an auction and when it should just negotiate with a single bidder.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HF Commerce | ||||||||
| Divisions: | Faculty of Social Sciences > Economics | ||||||||
| Library of Congress Subject Headings (LCSH): | Auctions -- Economic aspects, Auctions -- Econometric models, Game theory | ||||||||
| Journal or Publication Title: | Journal of Economic Theory | ||||||||
| Publisher: | Elsevier Inc. | ||||||||
| ISSN: | 0022-0531 | ||||||||
| Official Date: | November 2019 | ||||||||
| Dates: |
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| Volume: | 184 | ||||||||
| Article Number: | 104913 | ||||||||
| DOI: | 10.1016/j.jet.2019.06.009 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 1 July 2019 | ||||||||
| Date of first compliant Open Access: | 23 February 2021 | ||||||||
| Related URLs: |
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