Weddings with Uncertain Prospects - Mergers under Asymmetric Information

Armin Schmutzler, Bühler, Stefan and Thomas Borek
Authors registered in the RePEc Author Service: Stefan Buehler

No 3839, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide a framework for analysing bilateral mergers when there is two-sided asymmetric information about firms? types. We introduce the concepts of essentially monotone decreasing (EMD) and increasing (EMI) functions, which generalize the respective mono-tonicity properties. If the profit differential between post-merger and pre-merger profits satisfies EMD, low-state firms gain more than high-state firms from mergers in expectation. Using this result, we characterize the equilibria of merger games with simultaneous and sequential moves. The application of our framework to specific oligopoly models illustrates that the introduction of two-sided asymmetric information may lead to considerable changes in the predicted merger pattern.

Keywords: Merger; Asymmetric information; Oligopoly; Single crossing; Essentially monotone decreasing functions (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 L33 (search for similar items in EconPapers)
Date: 2003-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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