Weddings with Uncertain Prospects � Mergers under Asymmetric Information

Thomas Borek, Stefan Buehler and Armin Schmutzler

No 213, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: We provide a framework for analyzing bilateral mergers when there is two-sided asymmetric information about firms� types. We show that there is always a "no-merger" equilibrium where firms do not consent to a merger, irrespective of their type. There may also be a "cut-off" equilibrium if the expected merger returns satisfy a suitable single crossing condition, which will hold if a firm�s merger returns are "essentially monotone decreasing" in its type. Applying our analysis to the linear Cournot model, we show how the merger pattern depends on the cost effects of mergers, the extent of uncertainty, and the way profits are split. Specifically, we show how increasing uncertainty about competitor types may foster mergers as firms hope for strong rationalization effects.

Keywords: merger; asymmetric information; oligopoly; single crossing (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 L33 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2002-11, Revised 2004-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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https://www.zora.uzh.ch/id/eprint/52171/1/wp0213.pdf Revised version, 2004 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:soz:wpaper:0213

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