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Horizontal mergers with synergies: Cash vs. profit-share auctions

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Author Info

  • Ding, Wei
  • Fan, Cuihong
  • Wolfstetter, Elmar G.

Abstract

We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target and bidders can influence rivals' beliefs through their bids. We compare cash and profit-share auctions, first- and second-price, supplemented by entry fees. Since non-merged firms benefit from a merger if synergies are low, bidders are subject to a positive externality with positive probability; nevertheless, pooling does not occur. Unlike cash auctions, profit-share auctions are not revenue equivalent, and the second-price profit-share auction is more profitable than the other auctions.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 5 ()
Pages: 382-391

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Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:382-391

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Horizontal mergers; Takeovers; Auctions; Externalities; Oligopoly;

References

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Cited by:
  1. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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