A Theory of Costly Sequential Bidding
Kent D. Daniel and David Hirshleifer
We propose a model of sequential bidding for a valuable object, such as a takeover target, when it is costly to submit or revise a bid. An implication of the model is that bidding occurs in repeated jumps, a pattern that is consistent with certain types of natural auctions such as takeover contests. The jumps in bid communicate bidders’ information rapidly, leading to contests that are completed with a small number of bids. The model provides several new results concerning revenue and efficiency relationships between different auctions, and provides an information-based interpretation of delays in bidding.