Auctions of companies


  • RG Hansen

    1. Tuck School, Dartmouth College, Hanover, NH 03755, USA Tel: 1 603 646 2079 E-mail:
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      Many of the ideas in this paper were generated when the author woked as a consultant with LED Consulting. The research was given financial support by the Tuck Associates. I would like to thank the editor, and anoymous reviewer, Rajesh Aggrawal, and participant at the Tuck School Finance/Finance/Economics workshop for useful comments.


Auctions of companies are conducted in ways that contradict received auction theory. The major puzzles are: (1) sellers restrict the number of bidders; (2) sellers restrict the number of bidders; (3) bidders are screened by an initial round of non-binding bids; and (4) bidders offer - and sellers sometimes accept - preemptive bids. Puzzles (1), (2), and (4) are explained by assuming that some information concerning the company can, if released, reduce the value of the company. Puzzle (3) is explained as a way for sellers to select the highest-valued bidders; equilibrium is maintained by using the initial bids to set a reserve price for the final bidding round.