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Essays on the theory of auctions and economic rents
Arikan, Ilgaz T.

2004, Doctor of Philosophy, Ohio State University, Business Administration.
In this dissertation I focus on how firms should buy resources in factor markets to create competitive advantages. When competing in factor or product markets to acquire resources or sell goods, firms often have to make strategic decisions whether to use spot market transactions with posted prices, negotiation markets with bargaining, or auction markets with bidding. Given these three different market mechanisms, what are the firm and industry specific factors that determine different selling/buying devices to occur simultaneously in the market? In the first essay I model dynamic resource acquisition in equilibrium, simultaneously taking into account the characteristics of factor markets from both the sellers' and the buyers' perspectives. Auctions, negotiations and spot markets are compared given heterogeneity of expectations, bargaining power of the participants, market thickness, risk propensity and search costs. In my second essay I empirically investigate and explain the optimal choice between market mechanisms in an entrepreneurial context. Two major markets exist for the sale of an entrepreneurial firm: initial public offering (IPO) versus mergers and acquisitions (M&A) markets. I find that all else being equal, entrepreneurial firms with high bargaining power are more likely to choose M&A versus IPO. Firms that represent high private values are more likely to be sold through auctions versus negotiations. As the market thickness increases, the likelihood of entrepreneurial firms being sold through M&A decreases. However, this finding is reversed for firms with higher private values. For firms with high debt ratios, the likelihood of M&A increases compared to IPOs. I find that as venture capital activity in the focal industry increases, the likelihood of M&As increases. In my third essay, I examine the business-to-business (B2B) industrial parts industry and the procurement practices of several firms by combining this business phenomenon with the auction theory, bidding mechanisms, and the strategic factor markets argument. I analyze the online auction markets as mechanisms that enable affiliated private value exchanges. Theoretically, I find that the creation of a centralized market generates rents for buyers, also, rather than what you buy; how you buy it is more important.
Oded Shenkar (Advisor)
191 p.

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