Selling Assets: Are Sellers Better Off with Strong Buyers?

The article investigates how the presence of a "strong buyer"—a buyer whose valuation stochastically dominates others—affects seller revenue in second price auctions with endogenous buyer entry and participation costs. It finds that while a strong buyer increases seller revenue in thin markets with a fixed number of bidders, in deep markets where buyer participation is endogenous and determined by zero-profit conditions, a strong buyer reduces competition by deterring entry of regular buyers, thereby lowering seller revenue. The study further explores nondiscriminatory seller strategies such as uniform entry subsidies or fees, reserve prices, bundling assets, and timing the sale, showing these can mitigate but not eliminate the negative revenue impact of strong buyers under endogenous entry. Extensions include multiple strong buyers and asset bundling, with results indicating that encouraging multiple strong buyers or selling assets jointly may not improve revenue if it crowds out regular buyers. Overall, the analysis highlights the complex interplay between buyer heterogeneity, endogenous entry, and auction design in corporate asset sales.