The Insiders' Dilemma: An Experiment on Merger Formation
AbstractThis paper tests the insiders' dilemma hypothesis in a laboratory experiment. The insiders' dilemma means that a profitable merger does not occur, because it is even more profitable for each firm to unilaterally stand as an outsider (Kamien and Zang, 1990 and 1993). The experimental data provides support for the insiders' dilemma, and thereby for endogenous rather than exogenous merger theory. More surprisingly, our data suggests that fairness considerations also make profitable mergers difficult. Mergers that should occur in equilibrium do not, since they require an unequal split of surplus.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2001:8.
Length: 30 pages
Date of creation: 19 Sep 2001
Date of revision:
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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
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coalition formation; experiment; insiders' dilemma; mergers; antitrust;
Other versions of this item:
- Lindqvist, Tobias & Stennek, Johan, 2005. "The Insiders' Dilemma: An Experiment on Merger Formation," CEPR Discussion Papers 5016, C.E.P.R. Discussion Papers.
- Lindqvist, Tobias & Stennek, Johan, 2001. "The Insiders' Dilemma: An Experiment on Merger Formation," Working Paper Series 563, Research Institute of Industrial Economics.
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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