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Compulsory or Voluntary Pre-merger Notification? Theory and Some Evidence

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Author Info
Chongwoo, Choe
Shekhar, Chander

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Abstract

We compare the prevailing system of compulsory pre-merger notification with the Australian system of voluntary pre-merger notification. It is shown that, for a non-trivial set of parameter values, a perfect Bayesian equilibrium exists in mixed strategies in which the regulator investigates un-notified mergers with probability less than one and the parties choose notification with probability less than one. Thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the merging parties as well as to the regulator.

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File URL: http://mpra.ub.uni-muenchen.de/13450/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13450.

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Date of creation: Feb 2009
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Handle: RePEc:pra:mprapa:13450

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Related research
Keywords: Merger regulation; pre-merger notification; abnormal returns;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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  7. Verena Hahn, 2000. "Antitrust Enforcement: Abuse Control or Notification?," European Journal of Law and Economics, Springer, vol. 10(1), pages 69-91, July. [Downloadable!] (restricted)
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  13. Fee, C. Edward & Thomas, Shawn, 2004. "Sources of gains in horizontal mergers: evidence from customer, supplier, and rival firms," Journal of Financial Economics, Elsevier, vol. 74(3), pages 423-460, December. [Downloadable!] (restricted)
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