Sweetening the Pill: a Theory of Waiting to Merge
Eileen Fumagalli () and
Tore Nilssen ()
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Eileen Fumagalli: Norwegian Competition Authority
Journal of Industry, Competition and Trade, 2019, vol. 19, issue 3, No 1, 388 pages
Abstract Merger policy is a permission-granting activity by government in which there may be disincentives to seek permission because of the benefit from having other firms merge. We set up a sequential merger game with endogenized antitrust policy to study one aspect of these disincentives. In particular, we delineate a pill-sweetening motive for waiting to merge: a small firm may choose to let other bigger firms move first, in order to get more mergers approved by government. We report the prevalence of pill sweetening to occur in equilibrium and find it to hinge on efficiency gains from a merger, differently sized firms, firms’ production technology, the presence of an antitrust authority, the alignment of interests between antitrust authorities and firms, and the number of firms in the industry.
Keywords: Mergers; Merger policy; Sequential mergers; Antitrust policy (search for similar items in EconPapers)
JEL-codes: L11 L13 L41 G34 (search for similar items in EconPapers)
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