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
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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.:
Stefan Boes & Markus Lipp & Rainer Winkelmann, 2005.
"Money Illusion Under Test,"
Working Papers
0514, University of Zurich, Socioeconomic Institute.
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Other versions:
Boes, Stefan & Lipp, Markus & Winkelmann, Rainer, 2007.
"Money illusion under test,"
Economics Letters,
Elsevier, vol. 94(3), pages 332-337, March.
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Cited by: (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.)
Daniel Halbheer & Ernst Fehr & Lorenz Goette & Armin Schmutzler, 2007.
"Self-Reinforcing Market Dominance,"
Working Papers
0711, University of Zurich, Socioeconomic Institute.
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Other versions:
Daniel Halbheer & Ernst Fehr & Lorenz Goette & Armin Schmutzler, .
"Self-Reinforcing Market Dominance,"
Working Papers
0094, University of Zurich, Institute for Strategy and Business Economics (ISU).
[Downloadable!]