Do Not Panic : How to Avoid Inefficient Rushes Using Multi-Stage Auctions

We show that open ascending auctions are prone to inefficient rushes, i.e. all bidders quitting at the same price, in market environments such as privatizations, takeover contests, and procurement auctions. Rushes arise when an incumbent with better information about a common value component of the asset for sale quits, and his exit reveals negative information. Rushes can be avoided, and expected social surplus maximized, by reducing the disclosure of information with the use of a multi-stage auction. Thus, our results point out to an important limitation of market mechanisms that provide immediate information disclosure to all agents in a market