LESSONS FROM A FAILED AIRLINE AUCTION | Zendy

MEISTER J. PATRICK | Zendy; ANDERSON KYLE J. | Zendy

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LESSONS FROM A FAILED AIRLINE AUCTION

Author(s) -

MEISTER J. PATRICK,

ANDERSON KYLE J.

Publication year - 2006

Publication title -

economic inquiry

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.823

H-Index - 72

eISSN - 1465-7295

pISSN - 0095-2583

DOI - 10.1093/ei/cbj013

Subject(s) - bidding , economics , profit (economics) , microeconomics , english auction , dutch auction , revenue equivalence , auction theory , business

In 1995, USAir placed itself for sale in an English auction. Interestingly, no bids were placed. This does not imply that the available firm is not a valuable acquisition. If losing reduces profits, firms wish to avoid a profit‐reducing bidding war. However, in a sealed‐bid auction (with no credible nonparticipation commitments), firms place profit‐reducing bids in equilibrium. Also, a novelty of our analysis is the specification of the loser's profit rising with the price that the winner pays. This highlights an important explanation of bidding wars because a firm may bid simply to make the eventual winner pay a higher price. ( JEL L1, L9)

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