Mergers under Asymmetric Information – Is there a Lemons Problem?
AbstractWe analyze a Bayesian merger game under two-sided asymmetric information about firm types. We show that the standard prediction of the lemons market model–if any, only low-type firms are traded–is likely to be misleading: Merger returns, i.e. the difference between pre- and post-merger profits, are not necessarily higher for low-type firms. This has two implications. First, under very general conditions, equilibria exist where mergers take place, and there is no presumption that there is ineffciently low trade. Second, in these equilibria it is typically not the case that only low-type firms enter an agreement.
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Bibliographic InfoPaper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0408.
Length: 33 pages
Date of creation: Jul 2004
Date of revision:
merger; asymmetric information; oligopoly; single crossing;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-BEC-2006-02-12 (Business Economics)
- NEP-COM-2006-02-12 (Industrial Competition)
- NEP-FMK-2006-02-12 (Financial Markets)
- NEP-IND-2006-02-12 (Industrial Organization)
- NEP-MIC-2006-02-12 (Microeconomics)
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