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Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets

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Author Info

  • Friberg, Richard

    ()
    (Stockholm School of Economics)

  • Norbäck, Pehr-Johan

    ()
    (Research Institute of Industrial Economics (IFN))

  • Persson, Lars

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

We propose a model of investments prior to corporate ownership changes. We derive conditions under which the selling of a firm triggers overinvestment by both the seller and the buyer prior to the asset transfer. In a setting with Cournot competition, we show that these incentives can drive the consumer prices in a post-acquisition duopoly below those of an ongoing triopoly. Our analysis warns against a mechanical use of pre-merger benchmarks in ex post merger evaluations.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 777.

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Length: 34 pages
Date of creation: 13 Nov 2008
Date of revision:
Handle: RePEc:hhs:iuiwop:0777

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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Web page: http://www.ifn.se/
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Related research

Keywords: Mergers & Acquisitions; Ownership; Auctions; Strategic Investments; Merger Evaluations;

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