UCL School of Management and The Centre for Finance, Department of Economics, are delighted to welcome Andrey Malenko, Boston University, to host a Finance seminar presenting ‘Auctions with Endogenous Initiation’.

Abstract

We study strategic initiation of auctions by potential buyers and the seller. This problem arises in auctions of companies and asset sales, among other contexts. A bidder’s decision to approach the seller signals that this bidder is optimistic about the value of the asset. In common-value auctions, such as battles between financial bidders, this revelation effect disincentivizes bidders from approaching the seller. In pure common-value auctions, no bidder ever approaches and auctions are seller-initiated.By contrast, in private-value auctions, such as battles between strategic bidders, the effect is the opposite, and equilibria can feature both seller- and bidder-initiated auctions. The model generates testable implications about the link between the initiating party, bids, and sale outcomes. It also points to a role of shareholder activists and investment banks as intermediaries in auctions of companies.