Active Bidders Research Articles

A Note on Buyers’ Behavior in Auctions with an Outside Option

In this note I show that the equilibrium in cutoff strategies observed in auctions with a buy-it-now price may also arise in markets where objects are sold simultaneously by auctions and posted prices. However, contrary to auctions with a buy-it-now price where buyers need to know only the total number of players in the market, in the latter environment buyers must also observe the number of active bidders in the auction for the equilibrium to exist in cutoff strategies.

Crafting a Statement of Cash Flows: Preferred Airline Group Corporation Buys West Coastal Air, Inc.

Marsha Alstone was fascinated with mergers and acquisitions. She had been following the news of Preferred Airline Group Corporation's (PAG's) interest in, offer for, and 100% acquisition of West Coastal Air, Inc. (WCA). When the deal closed on December 2, 2018, just a few weeks before PAG's fiscal year-end, she found herself wanting to develop, on her own, the consolidated statement of cash flows (SCF) for the year during which the WCA deal had closed. She wants to know in what ways the acquirer's postconsolidation financial statements changed in comparison to those from the year prior to the acquisition. Excerpt UVA-C-2427 Jun. 26, 2019 Crafting a Statement of Cash Flows: Preferred Airline Group Corporation Buys West Coastal Air, Inc. There was no mistaking that Marsha Alstone was fascinated with mergers and acquisitions (M&A). She was always intrigued by which company stepped into the role of acquirer and which company, willingly or not, assumed the role of acquiree. Her curiosity was almost unquenchable. She needed to know why one corporate “marriage” worked out and another did not. What were the related M&A stories presented in the company's press releases and hidden therein between the lines? And how many times did those press releases mention synergies? Why did the deal happen when it did and not sooner, not later? How did the acquirer determine the price it ended up paying? Was the acquisition defensive, offensive, or both? Were there other active bidders in the arena or presumably lurking on the sidelines? Was the acquiring company an experienced acquirer or was this its first significant foray into the M&A arena? What were the industry analysts opining about the deal's prospects and pitfalls? Which of the corporate executives from both companies got to stay on after the deal closed and which had to, or chose to, leave? Did those departing executives go to a competitor, and did they go quietly? How much was their severance package? And, in what ways did the acquirer's postconsolidation financial statements change in comparison to those from the year prior to the acquisition? At the moment, it was this last question that was occupying her time and attention. She had been following the news of Preferred Airline Group Corporation's (PAG's) interest in, offer for, and 100% acquisition of West Coastal Air, Inc. (WCA). The acquisition was rumored during the previous winter, announced in the spring, and closed on December 2, 2018, just a few weeks before PAG's fiscal year-end. Alstone had some of the related PAG financial data (Exhibit 1), but she found herself wanting to develop, on her own, the consolidated statement of cash flows (SCF) for the year during which the WCA deal had closed. . . .

Inefficient rushes in auctions

We analyze a setting common in privatizations, public tenders, and takeovers in which the ex post efficient allocation, i.e., the first best, is not implementable. Our first main result is that the open ascending auction is not second best because it is prone to rushes, i.e., all active bidders quitting simultaneously, that undermine its efficiency. Our second main result is that the second best can be implemented with a two‐round auction used in real‐life privatizations. We also show how this result generalizes using a survival auction with a novel tie‐breaking rule.

Hiding Information in Open Auctions with Jump Bids

We analyse a rationale for hiding information in open ascending auction formats. We focus on the incentives for a bidder to call a price higher than the highest standing one in order to prevent the remaining active bidders from aggregating more accurate information by observing the exact dropout values of the opponents who exit the auction. We show that the decision whether to allow jump bids or not can have a drastic impact on revenue and efficiency.

Director networks and takeovers

We study the impact of corporate networks on the takeover process. We find that better connected companies are more active bidders. When a bidder and a target have one or more directors in common, the probability that the takeover transaction will be successfully completed augments, and the duration of the negotiations is shorter. Connected targets more frequently accept offers that involve equity. Directors of the target firm (who are not interlocked) have a better chance to be invited to the board of the combined firm in connected M&As. While connections have a clear impact on the takeover strategy and process, we do not find evidence that the market acknowledges connections between bidders and targets as the announcement returns are not statistically different from those bidders and targets which are ex ante not connected.

The number of active bidders in internet auctions

Internet auctions attract numerous agents, but only a few become active bidders. Under the Independent Private Values Paradigm the valuations of the active bidders form a specific record sequence. This record sequence implies that if the number n of potential bidders is large, the number of active bidders is approximately 2 log n , potentially explaining the relative inactivity. Moreover, if the arrival of potential bidders forms a non-homogeneous Poisson process due to a time preference for auctions that are soon to close, then the arrival process of the active bidders is approximately a Poisson arrival process.

Director Networks and Takeovers

We study the impact of corporate networks on the takeover process. We find that better connected companies are more active bidders. When a bidder and a target have one or more directors in common, the probability that the takeover transaction will be successfully completed augments, and the duration of the negotiations is shorter. Connected targets more frequently accept offers that involve equity. Directors of the target firm (who are not interlocked) have a better chance to be invited to the board of the combined firm in connected M&As. While connections have a clear impact on the takeover strategy and process, we do not find evidence that the market acknowledges connections between bidders and targets as the announcement returns are not statistically different from those bidders and targets which are ex ante not connected.

Hiding Information in Open Auctions

We analyze the rationale for hiding information in open auction formats. In particular, we focus on the incentives for a bidder to call a price higher than the highest standing one in order to prevent the remaining active bidders from aggregating more accurate information that could be gathered by observing the exact drop out values of the exiting bidders. Necessary conditions for the existence of jump bids with such motivations are provided. Finally, we show that there is no clear-cut effect of jump bids on efficiency and expected revenue and introduce several specific results.

An Estimable Demand System for a Large Auction Platform Market

We develop a demand system for a dynamic auction market with directed search. In each period, heterogeneous goods are exogenously supplied and sold by second price auction, and incumbent bidders choose which good to bid on and how much to bid. Bidder valuations are multidimensional, private and perfectly persistent, and the population of bidders evolves according to an exogenous entry and endogenous exit process. We prove that the state of the market | which includes active bidders' types and information sets | evolves as a geometrically ergodic Markov process. We characterize best responses as solutions to a partially observed Markov decision problem and provide conditions under which the econometrician can identify equilibrium strategies from time series data. We provide additional conditions under which this allows nonparametric identi cation of preferences. When the market is large so that each bidder's actions are informationally small, we show bidderwise identi cation: the valuations of bidders whose individual time series includes a bid on every product are identifi ed. Two-stage nonparametric and semiparametric estimation procedures are proposed, and shown to work well in Monte Carlo and counterfactual simulations.

Analysis of single and networked auctions

Web-based computerized auctions are increasingly present in the Internet. We can imagine that in the future this trend will actually be extended to situations where virtual buyer and seller agents will conduct automated transactions across the network, and that large sectors of the economy may be strucured in this manner. The purpose of this article is to model automated bidders and sellers which interact through a network. We model the bidding process as a random arrival process while the price attained by a good is modeled as a discrete random variable. We obtain analytical solutions allowing us to compute the income from a single auction, or the income per unit time from a repeated sequence of auctions. A variety of single-auction models are studied, including English and Vickrey auctions, and the income per unit time is derived as a function of other parameters, including the rate of arrival of bids, the seller's decision time, the value of the good, and the “rest time” of the seller between successive auctions. We illustrate the results via numerical examples. We also introduce a model for networked auctions where bidders can circulate among a set of interconnected auctions which we call the Mobile Bidder Model (MBM). We obtain an analytical solution for the MBM under the assumption,which we call the “active bidders assumption,” that activities that are internal to an auction (bids and sales) are much more frequent than changes that occur in the number of bidders at each auction.

Quantifying the cost of excess market thickness in timber sale auctions

In auctions with endogenous entry, theory predicts that too many potential bidders, or the excess market thickness, may actually decrease the seller's expected revenue and the social welfare generated by the auction. This paper proposes a computationally easy method for estimating the optimal number of potential bidders in timber sale auctions with endogenous entry and an uncertain number of active bidders and then quantifies the cost of excess market thickness. It is found that the welfare loss due to the excess market thickness is moderate in this market.

Typologie de comportements des enchérisseurs en ligne et identification de comportements gagnants : application aux enchères Air France

This research proposes to gain an insight into online bidding behavior, by defining a typology based on decisions that bidders have to make during an auction, whose keywords are certainly: when? How? How much? Results, based on Air France online auctions (B2C airline tickets auctions with a soft ending rule) and obtained through clustering analysis, provide a description of different bidding behaviors. Five types of behaviors are highlighted: jump bidders, rational bidders, active bidders, bottom fishers and pioneers. A closer look is given to the group of bidders who turned out to win an auction, in order to determine whether these bidders are characterized by specific bidding decisions, and thus, by specific bidding behaviors. Active bidders and rational bidders turn out to be positively linked to the winners’ group.

The Extent of Internet Auction Markets

textabstractInternet auctions attract numerous agents, but only a few become active bidders. A major difficulty in the structural analysis of internet auctions is that the number of potential bidders is unknown. Under the independent private value paradigm (IPVP)the valuations of the active bidders form a specific record sequence. This record sequence implies that if the number n of potential bidders is large, the number of active bidders is approximately 2 log n, explaining the relative inactivity. Empirical evidence for the 2 log n rule is provided. This evidence can also be interpreted as a weak test of the IPVP.

Econometrics of first-price auctions with entry and binding reservation prices

This paper considers the structural analysis of first-price auctions with entry and binding reservation prices. The presence of entry decisions and binding reservation prices complicates the structural analysis. Building on the recent theoretical work on entry in auctions, this paper assumes that each potential bidder first decides whether or not to incur an entry cost and become an active bidder using a symmetric mixed strategy. Then each active bidder bids optimally following the increasing Nash–Bayesian equilibrium strategy. Using the observed bids and the number of actual bidders, we propose an MSM estimator to estimate the parameters in the distribution of private values and the distribution of the number of active bidders. Our approach can be used to validate the theoretical auction model, to test whether the reservation prices are binding, and to test the mixed-strategy of entry.

Computing price trajectories in combinatorial auctions with proxy bidding

Proxy bidding has proven useful in a variety of real auction formats – most notably eBay – and has been proposed for the nascent field of combinatorial auctions. Previous work on proxy bidding in combinatorial auctions requires the auctioneer to run the auction with myopic bidders to determine the outcome. In this paper, we present a radically different approach that computes the bidders’ allocation of their attention across the bundles only at “inflection points”. Inflections are caused by the introduction of a new bundle into an agent’s demand set, a change in the set of currently competitive allocations, or the withdrawal of an agent from the set of active bidders. This approach has several advantages over alternatives, including that it computes exact solutions and is invariant to the magnitude of the bids.

Explaining M&A Success in European Banks

Abstract We study 98 large M&As of European bidding banks from 1985 to 2000 in order to investigate drivers of excess returns to the shareholders of the targets, the bidders, and to the combined entity of the bidder and the target. Our findings show that many of 13 drivers identified mostly from prior, US‐focused research have significant explanatory power, indicating that the stock market reaction to M&A announcements of European bidding banks can be at least partly forecast. Our results are largely consistent with the US‐experience and confirm the preference of stock markets for focused transactions and against diversification. Moreover, we find that less active bidders create more value than more active/experienced bidders. This stands in contrast to some US research and may indicate that managers of frequent European bidding banks may be motivated by other objectives than creating shareholder value.

Standard Auctions with Identity-Dependent Externalities

I analyze equilibrium bidding behavior in the open ascending-bid auction with identity-dependent externalities. With reciprocal externalities, the allocation is determined by bidders' consumption values alone. With large nonreciprocal externalities, the open auction generates higher expected revenue compared to standard sealed-bid auctions. The progress of the open auction reveals more information about the identity of the potential winner, allowing active bidders greater opportunity to avoid incurring payoff-reducing externalities. The associated option value to staying active up until a relatively high price translates into higher expected revenue. Multiple bidders may sequentially quit at the same price, and relative to sealed-bid auctions, bidders experience less ex post regret.

Screening, Bidding, and the Loan Market Tightness *

Bank loans are more available and cheaper for new and small businesses in the U.S. in concentrated banking areas than in competitive banking areas. We explain this anomaly by analyzing banks' decisions to screen projects and their competition in loan provisions. It is shown that, by exacerbating the winner's curse, an increase in the number of banks can reduce banks' screening probability by so much that the number of banks that actively compete in loan provisions falls and the expected loan rate rises. This is the case when the screening cost is low, which induces all active bidders to be informed. The opposite outcome occurs when the screening cost is high, in which case there are sufficiently many uninformed banks in bidding to attenuate the winner's curse. We also examine the social optimum. JEL classification: G21, D44, L15

Screening, Bidding and the Loan Market

Bank loans are more available and cheaper for new and small businesses in the U.S. in areas with highly concentrated banks than in areas with highly competitive banks. To explain this fact, we analyze banks' decisions to screen the project and their subsequent competition in loan provisions. It is shown that, by increasing a negative informational externality to an informed winner, an increase in the number of banks in the market can reduce banks' screening probability sufficiently, reduce the number of banks that actively compete in loan provisions and increase the expected loan rate. This occurs when the screening cost is not very high, in which case all active bidders are informed. The opposite outcome occurs when the screening cost is high, in which case there are sufficiently many uninformed banks in bidding to attenuate the negative informational externality.

Timing of bids at pooled real estate auctions

When many similar properties are being auctioned, auctioneers often resort to the pooled design. The winning bidder of a given round is given a choice among all the unclaimed (pooled) properties. Bidding strategy depends on expectations of rival bidders' behavior as well as personal valuation. Anecdotal evidence from condominium auctions suggests that bidding decisions can produce price anomalies. This study develops a simple theoretical model with three active bidders and three units for sale to show how such anomalies may emerge. Estimation is then made of a hedonic price model using data from a condominium auction of 53 units on three separate dates. The empirical results support the view that the best buys are found in the middle of the auction with overpayments at the beginning and end.