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Merger Negotiations and Ex-Post Regret

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Author Info
Gärtner, Dennis
Schmutzler, Armin

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Abstract

We consider a setting in which two potential merger partners each possess private information pertaining both to the profitability of the merged entity and to stand-alone profits, and investigate the extent to which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations. To this end, we consider ex-post mechanisms, which use both players' reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5911.

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Date of creation: Oct 2006
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Handle: RePEc:cpr:ceprdp:5911

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Related research
Keywords: asymmetric information efficient mechanisms interdependent valuations mechanism design mergers

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dennis Gaertner & Armin Schmutzler, 2006. "Merger Negotiations and Ex-Post Regret," Working Papers 0607, University of Zurich, Socioeconomic Institute, revised Dec 2007. [Downloadable!]
    Other versions:
  2. Philippe Mahler & Rainer Winkelmann, 2005. "Single Motherhood and (Un)Equal EducationalOpportunities: Evidence for Germany," Working Papers 0512, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  3. Hans Gersbach & Armin Schmutzler, 2006. "Foreign Direct Investment and R&D offshoring," Working Papers 0606, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  4. Stefan Boes & Markus Lipp & Rainer Winkelmann, 2005. "Money Illusion Under Test," Working Papers 0514, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  5. Riley, John G, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Blackwell Publishing, vol. 55(3), pages 409-29, July. [Downloadable!] (restricted)
    Other versions:
  6. Sandra Hanslin & Rainer Winkelmann, 2006. "The Apple Falls Increasingly Far: Parent-Child Correlation in Schooling and the Growth of Post-Secondary Education in Switzerland," Working Papers 0603, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  7. Stefan Boes & Rainer Winkelmann, 2006. "The Effect of Income on Positive and Negative Subjective Well-Being," Working Papers 0605, University of Zurich, Socioeconomic Institute. [Downloadable!]
  8. Thomas Borek & Stefan Buehler & Armin Schmutzler, 2004. "Mergers under Asymmetric Information – Is there a Lemons Problem?," Working Papers 0408, University of Zurich, Socioeconomic Institute. [Downloadable!]
  9. Stefan Boes, 2004. "Empirical Likelihood in Count Data Models: The Case of Endogenous Regressors," Working Papers 0404, University of Zurich, Socioeconomic Institute. [Downloadable!]
  10. Dennis Gaertner & Daniel Halbheer, 2004. "Are There Waves in Merger Activity After All?," Working Papers 0414, University of Zurich, Socioeconomic Institute, revised Feb 2006. [Downloadable!]
  11. Yves Schneider & Peter Zweifel, 2005. "Spatial Effects in Willingness-to-Pay: The Case of Two Nuclear Risks," Working Papers 0502, University of Zurich, Socioeconomic Institute, revised Sep 2007. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dennis Gaertner & Armin Schmutzler, 2006. "Merger Negotiations and Ex-Post Regret," Working Papers 0607, University of Zurich, Socioeconomic Institute, revised Dec 2007. [Downloadable!]
    Other versions:
  2. Stefan Boes, 2007. "Nonparametric Analysis of Treatment Effects in Ordered Response Models," Working Papers 0709, University of Zurich, Socioeconomic Institute. [Downloadable!]
  3. Dennis Gaertner, 2007. "Monopolistic Screening under Learning By Doing," Working Papers 0718, University of Zurich, Socioeconomic Institute. [Downloadable!]
  4. Helga Fehr-Duda & Adrian Bruhin & Thomas Epper & Renate Schubert, 2007. "Rationality on the Rise: Why Relative Risk Aversion Increases with Stake Size," Working Papers 0708, University of Zurich, Socioeconomic Institute, revised Feb 2008. [Downloadable!]
  5. Dennis Gaertner, 2007. "Why Bayes Rules: A Note on Bayesian vs. Classical Inference in Regime Switching Models," Working Papers 0719, University of Zurich, Socioeconomic Institute. [Downloadable!]
  6. Daniel Halbheer & Ernst Fehr & Lorenz Goette & Armin Schmutzler, 2007. "Self-Reinforcing Market Dominance," Working Papers 0711, University of Zurich, Socioeconomic Institute. [Downloadable!]
  7. Rafael Lalive & Armin Schmutzler, 2005. "Exploring the Effects of Competition for Railway Markets," Working Papers 0511, University of Zurich, Socioeconomic Institute, revised Apr 2007. [Downloadable!]
    Other versions:
  8. Lukas Steinmann & Harry Telser & Peter Zweifel, 2005. "The Impact of Aging on Future Healthcare Expenditure," Working Papers 0510, University of Zurich, Socioeconomic Institute, revised Dec 2006. [Downloadable!]
  9. Hans Gersbach & Armin Schmutzler, 2006. "A Product-Market Theory of Industry-Specific Training," Working Papers 0610, University of Zurich, Socioeconomic Institute. [Downloadable!]
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