Title

A classroom auction with externalities: Applied to mergers and acquisitions

Document Type

Article

Publication Date

6-1-2007

Abstract

The authors describe an in-class exercise in which students participate in an auction to buy US Airways. The exercise is based on events of late 1995. in which neither United nor American Airlines decided to bid for US Airways. Two teams of students participate in an English auction. Students learn that the equilibrium of the sequential game is that neither firm bid and, thereby, learn why US Airways did not sell at that time. In addition, two other teams participate in a sealed-bid auction, in which US Airways will sell in Nash equilibrium. Results typically have lined up with theoretical predictions. Copyright © 2007 Heldref Publications.

Publication Name

Journal of Economic Education

Volume Number

38

First Page

297

Last Page

307

Issue Number

3

DOI

10.3200/JECE.38.3.297-307

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