How bidding costs affect auction strategies in mergers and acquisitions.

D. Hirshleifer and I. Png (1990) show that jump bidding is a sufficient auction strategy when bidders face variable bidding costs. This thesis shows that inverse jump bidding, which I call delay bidding, has strategically advantages as well. Current literature on auction theory mostly does not include cost structures of bidders. Those cost structures, however, can offer great game-theoretical strategies which enhances the bargaining power of bidders. Furthermore it shows how bids should be optimized when bidders face various cost structures. I also show how these optima are affected by different risk appetites. Also, my empirical analyses of 1,829 mergers and acquisitions, in the period January 1980 to March 2012, evince the existence of justifications of delay bidding and thereby confirms theory, by showing a significant negative relation between the bidding costs and the settlement time of a takeover (model p-value = 0.000).