The jump bidding behavior is not unique

The signaling ABT-751 behind jump bidding in takeover auctions was further developed by Daniel and Hirshleifer (1998), who used the signaling hypothesis to explain why not only initial, but also subsequent bids in takeover auction are made with a jump. They argue that submitting or revising takeover bids is costly. As a result, any subsequent jump bid can be used to signal high value and prevent the competitors from resubmitting their bids. Hirshleifer and P’ng (1989) developed a takeover auction model with a jump bidding equilibrium in the presence of both entry and bidding costs. Avery (1998) analyzed two-stage auctions with affiliated values. During the first stage two bidders simultaneously submit either a zero or pre-specified jump bid. The second stage is an ascending English auction which, because of the value affiliation, has multiple asymmetric equilibriums. The equilibrium that ends up to be played at the English auction stage depends on the bids submitted during the first (signaling) stage. In contrast to other studies, Avery (1998) does not assume any transaction costs: the potential gain from the first-stage signaling comes from the ability to play a more aggressive strategy during the second stage of the auction.