Strategic Merger Approvals Under Incomplete Information

Kiriti Kanjilal (), Ana Espinola-Arredondo and Felix Munoz-Garcia ()
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Kiriti Kanjilal: Indraprastha Institute of Information Technology
Felix Munoz-Garcia: Washington State University

Review of Industrial Organization, 2024, vol. 65, issue 3, No 7, 759-791

Abstract: Abstract We examine a signaling game where the merging entity privately observes the cost-reduction effect from the merger, but the competition authority does not. The latter, however, observes the firm’s submission costs in the merger request, using them to infer its type. We identify pooling equilibria where all firm types, even those with small efficiencies, submit a merger request, which is approved by the regulator. This merger profile cannot be supported under complete information, thus leading to inefficiencies. We investigate under which parameter conditions inefficient mergers are less likely to arise in equilibrium, and which policies hinder them, ultimately improving information transmission from firms to the competition authority.

Keywords: Mergers; Cost-reduction effects; Signaling; Submission costs (search for similar items in EconPapers)
JEL-codes: D82 G34 L13 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11151-024-09961-1

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