A Theory of Costly Sequential Bidding

Kent D. Daniel and David Hirshleifer

July 1998


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.

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