Horizontal mergers with synergies: first-price vs. profit-share auction

Wei Ding, Cuihong Fan and Elmar Wolfstetter

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target. Two auction rules are considered: standard first-price and profit-share auctions, supplemented by entry fees. Since non-merged firms benefit from a merger if the synergies are low, bidders are subject to a positive externality. Nevertheless, pooling does not occur; and the profit-share auction is strictly more profitable than the first-price auction, regardless of whether firms observe the synergy parameter or only the winning bid before they play the oligopoly game.

Keywords: Horizontal mergers; takeovers; auctions; externalities; oligopoly (search for similar items in EconPapers)
JEL-codes: D43 D44 G34 H23 L13 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta and nep-ind
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Citations: View citations in EconPapers (2)

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