Bulow and Klemperer on Auctions

Jeremy Bulow and Paul Klemperer have a new paper out in the current issue of the American Economic Review, Why Do Sellers (Usually) Prefer Auctions?.  Here's the abstract:

We compare the most common methods for selling a company or other asset when participation is costly: a simple simultaneous auction, and a sequential process in which potential buyers decide in turn whether to enter the bidding. The sequential process is always more efficient. But preemptive bids transfer surplus from the seller to buyers. Because the auction is more conducive to entry -- precisely because of its inefficiency -- it usually generates higher expected revenue. We also discuss the effects of lock-ups, matching rights, break-up fees (as in takeover battles), entry subsidies, etc. (JEL D44, G34, L13)

-bjmq