FEEM working papers "Note di lavoro" series
2001 .037

Privatisation, Large Shareholders, and Sequential Auctions of Shares

Authors: Bernardo Bortolotti
Series: Economy and Society
Editor: Fausto Panunzi
Keywords: Privatisation,auctions
JEL n.: L33,D44
JEL: Journal of Public Economics


We study the government's decision to sell a state-owned enterprise to strategic investors in a common value auction setting. The government can choose to sell his control stake all at once, or to design a sequential auction of shares. The sequential auction allows information transmission, so that the winner of the first stake receives a signal about the value of control rights which will be sold at the second and final auction. We show that if bidders are symmetric, the sequential auction and the block auction are revenue equivalent. If instead one of the bidders has private information, the sequential auction is more profitable for the government. By disseminating information, the sequential auction forces the informed bidder to bid more aggressively, raising expected revenues.

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