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Using Auction Theory to Inform Takeover Regulation
Journal of Law, Economics, and Organization (1991)
  • Peter Cramton, Yale University
  • Alan Schwartz, Yale University

This paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target’s Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock-holders at a sale of the company.’’ The Delaware courts’ preference for auctions follows from two premises. First, a firm’s managers should maximize the value of their shareholders’ investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target’s board should conduct an auction when at least two firms would bid sums that are nontrivially above the target’s prebid market price.

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Citation Information
Peter Cramton and Alan Schwartz. "Using Auction Theory to Inform Takeover Regulation" Journal of Law, Economics, and Organization Vol. 7 (1991)
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