Predation and Mergers: Is Merger Law Counterproductive?

Lars Persson

No 2734, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper shows that predation might help firms overcome the free riding problem of mergers by changing the acquisition situation in the buyer's favour relative to the firms outside the merger. It is also shown that the bidding competition for the prey's assets is most harmful to predators when the use of the prey's assets exerts strong negative externalities on rivals, i.e. when their use severely reduces competitors' profits. The reason is that potential buyers are then willing to pay a high price for the prey in order to prevent other buyers from obtaining the assets. This implies that predators prefer predation technologies that destroy the prey's assets since they limit the negative effects of the subsequent bidding competition for the prey. It is also shown that a restrictive merger policy might be counterproductive, since it might increase the incentives for predation by helping predators avoid the bidding competition. Moreover, the incentive for predation under the US failing firm defence might be strong, since it allows mergers but limits the bidding competition.

Keywords: Mergers; Predation; Merger law; Failing firm defence (search for similar items in EconPapers)
JEL-codes: K21 L12 L41 (search for similar items in EconPapers)
Date: 2001-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP2734 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Predation and mergers: Is merger law counterproductive? (2004)
Working Paper: Predation and Mergers: Is Merger Law Counterproductive? (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2734

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2734
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).