Horizontal mergers with synergies: first-price vs. profit-share auction
AbstractWe consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target. Two auction rules are considered: standard first-price and profit-share auctions, supplemented by entry fees. Since non-merged firms benefit from a merger if the synergies are low, bidders are subject to a positive externality. Nevertheless, pooling does not occur; and the profit-share auction is strictly more profitable than the first-price auction, regardless of whether firms observe the synergy parameter or only the winning bid before they play the oligopoly game.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 336.
Date of creation: Oct 2010
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Horizontal mergers; takeovers; auctions; externalities; oligopoly;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-BEC-2010-10-23 (Business Economics)
- NEP-COM-2010-10-23 (Industrial Competition)
- NEP-CTA-2010-10-23 (Contract Theory & Applications)
- NEP-IND-2010-10-23 (Industrial Organization)
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- Byoung Heon Jun & Elmar G. Wolfstetter, 2013.
"Security bid auctions for agency contracts,"
Discussion Paper Series
1303, Institute of Economic Research, Korea University.
- Jun, Byoung Heon & Wolfstetter, Elmar G., 2012. "Security bid auctions for agency contracts," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 371, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Byoung Heon Jun & Elmar G. Wolfstetter, 2013. "Security Bid Auctions for Agency Contracts," CESifo Working Paper Series 4554, CESifo Group Munich.
- Jos Jansen & Ad Stokman, 2011. "International Business Cycle Comovement: Trade and Foreign Direct Investment," DNB Working Papers 319, Netherlands Central Bank, Research Department.
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