Preemptive bidding in common value takeover auctions: Social surplus and the target's revenue

This paper develops a model of preemptive jump bidding in common value takeover auctions. It shows that, in a case of common values, jump bidding increases the social surplus and, under certain conditions, can lead to a higher expected target's revenue. It also demonstrates that an increase in investigation costs may improve social efficiency even if it leads to larger direct social costs. Based on the results, the paper provides several implications related to legal fees and the length of the takeover contest.