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Bargaining Failures and Merger Policy

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  • Roberto Burguet
  • Ramon Caminal

Abstract

In this paper we study the optimal ex-ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates. We allow for firm asymmetries and, in particular, we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms. The model demonstrates that, under some circumstances, relatively inefficient mergers may take place. That is, a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits. Such bargaining failures have important implications for the ex-ante optimal merger policy. We show that a more stringent policy than the ex-post optimal reduces the scope of these bargaining failures and raises expected social surplus. We use a bargaining model that is flexible, in the sense that its strategic structure does not place any exogenous restriction on the endogenous likelihood of feasible mergers.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 633.

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Date of creation: May 2012
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Handle: RePEc:bge:wpaper:633

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Keywords: endogenous mergers; merger policy; bargaining; synergies;

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  1. Barros, Pedro Pita, 1998. "Endogenous mergers and size asymmetry of merger participants," Economics Letters, Elsevier, Elsevier, vol. 60(1), pages 113-119, July.
  2. Inderst, Roman & Wey, Christian, 2004. "The incentives for takeover in oligopoly," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(8-9), pages 1067-1089, November.
  3. Olivier Compte & Philippe Jehiel, 2010. "The Coalitional Nash Bargaining Solution," Econometrica, Econometric Society, Econometric Society, vol. 78(5), pages 1593-1623, 09.
  4. Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(1), pages 1-29, April.
  5. Roberto Burguet & Ramon Caminal, 2010. "Simultaneous Nash Bargaining with Consistent Beliefs," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 854.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. Morton I. Kamien & Israel Zang, 1987. "The Limits of Monopolization Through Acquisition," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 754, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. repec:ant:wpaper:1999018 is not listed on IDEAS
  8. Persson, Lars & Horn, Henrik, 1998. "Endogenous Mergers in Concentrated Markets," Working Paper Series, Research Institute of Industrial Economics 513, Research Institute of Industrial Economics.
  9. Fridolfsson, Sven-Olof & Stennek, Johan, 2005. "Hold-up of anti-competitive mergers," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(9-10), pages 753-775, December.
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