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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))

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

Other versions of this item:

Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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