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The Dynamics of Mergers and Acquisitions in Oligopolistic Industries

Dirk Hackbarth and Jianjun Maio ()
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Jianjun Maio: Department of Economics, Boston University and Department of Finance, the Hong Kong University of Science and Technology

Authors registered in the RePEc Author Service: Jianjun Miao

No WP2007-017, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: This paper develops a continuous time real options model to study the interaction between industry structure and takeover activity. In an asymmetric industry equilibrium, firms have an endogenous incentive to merge when restructuring decisions are motivated by operating and strategic benefits. The model predicts that (i) the likelihood of restructuring activities is greater in more concentrated industries or in industries that are more exposed to exogenous shocks; and (ii) the magnitude of returns arising from restructuring to both merger firms and rival firms are higher in more concentrated industries. While recent real options models contend that competition erodes the option value of waiting and hence accelerates the timing of mergers, in our model, increased competition delays the timing of mergers.

Keywords: industry structure; anticompetitive effect; real options; takeovers. (search for similar items in EconPapers)
JEL-codes: G13 G14 G31 G34 (search for similar items in EconPapers)
Pages: 32pages
Date: 2007-04
New Economics Papers: this item is included in nep-fmk and nep-upt
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Related works:
Journal Article: The dynamics of mergers and acquisitions in oligopolistic industries (2012) Downloads
Working Paper: The dynamics of mergers and acquisitions in oligopolistic industries (2011)
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