The Insiders’ Dilemma: An Experiment on Merger Formation

Tobias Lindqvist () and Johan Stennek ()

Experimental Economics, 2005, vol. 8, issue 3, 267-284

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, 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. Copyright Springer Science + Business Media, Inc. 2005

Keywords: coalition formation; experiment; insiders’ dilemma; mergers; antitrust (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (10)

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Working Paper: 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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DOI: 10.1007/s10683-005-1466-7

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