MERGER PERFORMANCE UNDER UNCERTAIN EFFICIENCY GAINS

Rabah Amir (), Effrosyni Diamantoudi () and Licun Xue ()

Departmental Working Papers from McGill University, Department of Economics

Abstract: In view of the uncertainty over the ability of merging firms to achieve efficiency gains, we model the post-merger situation as a Cournot oligopoly wherein the outsiders face uncertainty about the merged entity’s final cost. At > the Bayesian equilibrium, a bilateral merger is profitable provided the non-merged firms sufficiently believe that the merger will generate large enough efficiency gains, even if ex post none actually materialize. The effects of the merger on market performance are shown to follow similar threshold rules. The findings are broadly consistent with stylized facts. An extensive welfare analysis is conducted, bringing out the key role of effciency gains and the different implications of consumer and social welfare standards.

JEL-codes: D43 L11 L22 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2006-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mic
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https://home.mcgill.ca/files/economics/mergerperformanceunder.pdf (application/pdf)

Related works:
Journal Article: Merger performance under uncertain efficiency gains (2009)
Working Paper: Merger Performance under Uncertain Efficiency Gains (2008)
Working Paper: Merger Performance under Uncertain Efficiency Gains (2004)
Working Paper: Merger performance under uncertain efficiency gains (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:mcl:mclwop:2005-07

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