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I. BANKRUPTCY AUCTIONS-LEGAL AND ECONOMIC PERSPECTIVES 330
A. Legal Background 330
1. Τypical Scenarios 330
2. The Question of Credit Bidding 333
B. Economic Environment 336
1. Why an Auction? 336
2. Challenges for Bankruptcy Auctions 345
II. AUCTION THEORY-A PRIMER 352
A. General 353
?. A Typology of Auctions 354
C. Choosing an Auction Method 358
1. Sealed-Bid Auction and Dutch Auction 358
2. English Auction and Second-Price Auction 359
3. Why Are Second-Price Auctions So Rare? 361
4. Sealed-Bid Auction Versus English Auction 363
a. When Is the English Auction Preferable?.. 363
1. Transaction Costs and Erroneous Strategy 363
2. Incomplete Information and the "Winner's Curse" 364
b. When Is the Sealed-Bid Auction Preferable?.. 366
D. Additional Aspects 370
1. Information on the Asset 370
2. Reserve Price 371
E. Auction Theory in Action-The FCC Spectrum Licenses Auctions 373
F. The Lesson Learned 379
III. DESIGNING AN OPTIMAL BANKRUPTCY AUCTION 380
A. General Guidelines 381
1. Utilizing Auction Theory 381
2. The Suggested ADVA Design 382
a. The Anglo-Dutch Feature 384
b. The Veto Feature 385
c. Other Features 387
B. Credit Bidding-A Critical Analysis 388
C. The Absence of a Regulator 391
IV. CONCLUSION 393
Whether in a bankruptcy case of a fraudulently operated firm such as Enron1 or that of the temporarily distressed Los Angeles Dodgers baseball team;2 in a routine and small-scale bankruptcy case of a neighborhood restaurant3 or in the unique multi-billion dollar bailouts of Chrysler and General Motors;4 in a bankruptcy of a traditional manufacturing firm5 or of a high-tech business;6 in the United States or in Europe;7 bankruptcy auctions have become "no longer a last resort but an option to be exercised at any time if it is in the creditors' interest."8 Indeed, recent studies show that over half of the firms entering corporate bankruptcy proceedings9 are auctioned10-either piecemeal or as a going concern-instead of reorganized" and restructured.12 Auctions seem to create value for financially distressed firms.13 However, what is the optimal design of a bankruptcy auction? Does the method by which a bankruptcy auction is executed matter at all? Is there a difference, for example, between the impact of an "English auction" and that of a "sealedbid" auction? Does it matter whether a reserve price...