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Bargaining failures and merger policy

Roberto Burguet and Ramon Caminal ()

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: In this paper we study the optimal ex-ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates. We allow for firm asymmetries and, in particular, we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms. The model demonstrates that, under some circumstances, relatively inefficient mergers may take place. That is, a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits. Such bargaining failures have important implications for the ex-ante optimal merger policy. We show that a more stringent policy than the ex-post optimal reduces the scope of these bargaining failures and raises expected social surplus. We use a bargaining model that is flexible, in the sense that its strategic structure does not place any exogenous restriction on the endogenous likelihood of feasible mergers.

Keywords: endogenous mergers; merger policy; bargaining; synergies (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
Pages: 37
Date: 2012-05-17
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
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Related works:
Journal Article: BARGAINING FAILURES AND MERGER POLICY (2015) Downloads
Working Paper: Bargaining Failures and Merger Policy (2014) Downloads
Working Paper: Bargaining failures and merger policy (2012) Downloads
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