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Merger Negotiations and Ex-Post Regret

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  • Gärtner, Dennis
  • Schmutzler, Armin

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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Keywords: asymmetric information; efficient mechanisms; interdependent valuations; mechanism design; mergers;

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