Abstract
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.
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