Advertisement

Review of Economic Design

, Volume 18, Issue 2, pp 127–150 | Cite as

Speculative partnership dissolution with auctions

  • Ludwig Ensthaler
  • Thomas GiebeEmail author
  • Jianpei Li
Original Paper

Abstract

The literature on partnership dissolution generally takes the dissolution decision as given and examines whether the outcome is efficient. A well-known result is that \(k+1\)-price auctions dissolve a partnership efficiently when the share structure is sufficiently close to equal. We extend the setup in two directions. First, we introduce complementarities by assuming a nontrivial continuation value of the partnership that is lost in case of dissolution. This makes inefficient breakups as well as continuation possible outcomes. Second, we assume that dissolution is not given, but must be triggered by a deliberate decision of at least one partner. This implies a signaling game, where calling for dissolution signals private information. We show that, in our extended setting, standard \(k+1\)-price auctions cannot dissolve a two-player equal-share partnership ex post efficiently. While allowing for veto or requiring consent does not help, adding a proper reserve to the winner’s bid auction restores efficiency.

Keywords

Partnership dissolution \(k+1\)-Price auctions Efficiency 

JEL Classification

C78 D23 D44 J12 L24 

References

  1. Athanassoglou S, Brams SJ, Sethuraman J (2008) Minimizing regret when dissolving a partnership, Working PaperGoogle Scholar
  2. Athanassoglou S, Brams SJ, Sethuraman J (2010) A note on the inefficiency of bargaining over the price of a share. Math Soc Sci 60(3):191–195CrossRefGoogle Scholar
  3. Brooks R, Landeo C, Spier K (2010) Trigger happy or gun shy? Dissolving common-value partnerships with Texas shootouts. RAND J Econ 41:649–673CrossRefGoogle Scholar
  4. Bulow J, Huang M, Klemperer P (1999) Toeholds and takeovers. J Political Econ 107(3):427–454CrossRefGoogle Scholar
  5. Chien H-K (2007) Incentive efficient mechanisms for partnership dissolution. University of Bonn, MimeoGoogle Scholar
  6. Chou ES, Liang M-Y, Wu C-T (2012) Partnership dissolution when efficiency warrants multiple owners, Working PaperGoogle Scholar
  7. Comino S, Nicolo A, Tedeschi P (2010) Termination clauses in partnerships. Eur Econ Rev 54(5):718–732CrossRefGoogle Scholar
  8. Cramton P, Gibbons R, Klemperer P (1987) Dissolving a partnership efficiently. Econometrica 55:615–632CrossRefGoogle Scholar
  9. de Frutos MA (2000) Asymmetric price-benefits auctions. Games Econ Behav 33:48–71CrossRefGoogle Scholar
  10. de Frutos MA, Kittsteiner T (2008) Efficient partnership dissolution under buy/sell clauses. RAND J Econ 39(1):184–198CrossRefGoogle Scholar
  11. Eliaz K, Spiegler R (2007) A mechanism-design approach to speculative trade. Econometrica 75(3):875–884CrossRefGoogle Scholar
  12. Engelbrecht-Wiggans R (1994) Auctions with price-proportional benefits to all bidders. Games Econ Behav 6(3):339–346CrossRefGoogle Scholar
  13. Farrell J, Scotchmer S (1988) Partnerships. Q J Econ 103:279–297CrossRefGoogle Scholar
  14. Ferreira D, Ornelas E, Turner JL (2013) Unbundling ownership and control. J Econ Manag Strateg (forthcoming)Google Scholar
  15. Fieseler K, Kittsteiner T, Moldovanu B (2003) Partnerships, lemons and effcient trade. J Econ Theory 113:223–234CrossRefGoogle Scholar
  16. Figueroa N, Skreta V (2012) Asymmetric partnerships. Econ Lett 115(2):268–271CrossRefGoogle Scholar
  17. Galavotti S, Muto N, Oyama D (2011) On efficient partnership dissolution under ex post individual rationality. Econ Theory 48:87–123CrossRefGoogle Scholar
  18. Hauswald R, Hege U (2003) Ownership and control in joint ventures: theory and evidence, CEPR, DP #4056Google Scholar
  19. Jehiel P, Pauzner A (2006) Partnership dissolution with interdependent values. RAND J Econ 37(1):1–22CrossRefGoogle Scholar
  20. Kittsteiner T (2003) Partnerships and double auctions with interdependent valuations. Games Econ Behav 44(1):54–76CrossRefGoogle Scholar
  21. Kittsteiner T, Ockenfels A, Trhal N (2012) Partnership dissolution mechanisms in the laboratory. Econ Lett 117(2):394–396CrossRefGoogle Scholar
  22. Ledyard JO, Palfrey TR (2007) A general characterization of interim efficient mechanisms for independent linear environments. J Econ Theory 133(1):441–466CrossRefGoogle Scholar
  23. Lengwiler Y, Wolfstetter E (2005) On some auction rules for amicable divorce in equal share partnerships. In: Beschorner T, Eger T (eds) Das Ethische in der Oekonomie, Festschrift f. Hans Nutzinger. Metropolis VerlagGoogle Scholar
  24. Li J, Wolfstetter E (2010) Partnership dissolution, complementarity, and investment incentives. Oxf Econ Pap 62:529–552CrossRefGoogle Scholar
  25. Li J, Xue Y, Wu W (2013) Partnership dissolution with proprietary information. Soc Choice Welf 40:495–527CrossRefGoogle Scholar
  26. McAfee RP (1992) Amicable divorce: dissolving a partnership with simple mechanisms. J Econ Theory 56:266–293CrossRefGoogle Scholar
  27. Minehart D, Neeman Z (1999) Termination and coordination in partnerships. J Econ Manag Strateg 8(2):191–221CrossRefGoogle Scholar
  28. Ming S, Xu K, Chen Z (October 2007) Purchasing 3Com. Caijing, vol 21Google Scholar
  29. Moldovanu B (2001) How to dissolve a partnership. J Inst Theor Econ 158:66–80CrossRefGoogle Scholar
  30. Morgan J (2004) Dissolving a partnership (Un)fairly. Econ Theory 23(4):909–923CrossRefGoogle Scholar
  31. Ornelas E, Turner J (2007) Efficient dissolution of partnerships and the structure of control. Games Econ Behav 60:187–199CrossRefGoogle Scholar
  32. Qin X, Zhang F (2013) Using clock auctions to dissolve partnership: an experimental study. Econ Lett 119(1):55–59CrossRefGoogle Scholar
  33. Saimaiti K (2011) The last piece of ‘Crazy Stone’, Nanfang weekend, 17 November 2011, p A6Google Scholar
  34. Schweinzer P (2010) Sequential bargaining with common values. J Math Econ 46:109–121CrossRefGoogle Scholar
  35. Turner J (2013) Dissolving (in)effective partnerships. Social Choice Welf 41:321–335CrossRefGoogle Scholar
  36. UPA (1997) Uniform partnership act, national conference of commissioners on uniform state laws, San Antonio, TX, USAGoogle Scholar
  37. Wasser C (2013) Bilateral k + 1-price auctions with aymmetric shares and values. Games Econ Behav 82:350–368CrossRefGoogle Scholar
  38. Xiao M (2012) Two-stage mechanisms efficiently dissolving partnerships with wrong beliefs, Working PaperGoogle Scholar
  39. Yenmez MB (2012) Dissolving multi-partnerships efficiently. J Math Econ 48(2):77–82CrossRefGoogle Scholar
  40. Yu NN, Chmura T (2013) Belief-ordering identification of ambiguity attitudes with application to partnership dissolving experiments, Working PaperGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Social Science Research Center (WZB) BerlinBerlinGermany
  2. 2.School of Business and EconomicsHumboldt University BerlinBerlinGermany
  3. 3.Microeconomics, Sekr. H91Technische Universität BerlinBerlinGermany
  4. 4.School of International Trade and EconomicsUniversity of International Business and EconomicsBeijingChina

Personalised recommendations