The Insiders' Dilemma: An Experiment on Merger Formation

Johan Stennek () and Tobias Lindqvist ()

No 5016, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper tests the insiders? dilemma hypothesis in a laboratory experiment. The insiders? dilemma means that a profitable merger does not occur, because it is even more profitable for each firm to unilaterally stand as an outsider (Stigler, 1950; Kamien and Zang, 1990 and 1993). The experimental data provides support for the insiders? dilemma, and thereby for endogenous rather than exogenous merger theory. More surprisingly, our data suggests that fairness (or relative performance) considerations also make profitable mergers difficult. Mergers that should occur in equilibrium do not, since they require an unequal split of surplus.

Keywords: Insiders' dilemma; Coalition formation; Experiment; Antitrust; Mergers (search for similar items in EconPapers)
JEL-codes: C78 C92 G34 L13 L41 (search for similar items in EconPapers)
Date: 2005-04
New Economics Papers: this item is included in nep-com, nep-exp, nep-fin and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: The Insiders’ Dilemma: An Experiment on Merger Formation (2005)
Working Paper: The Insiders' Dilemma: An Experiment on Merger Formation (2001)
Working Paper: The Insiders' Dilemma: An Experiment on Merger Formation (2001)
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