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Managerial incentives for mergers

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  • Ramon Faulí
  • Massimo Motta

Abstract

We study managerial incentives in a model where managers take not only product market but also takeover decisions. We show that the optimal contract includes an incentive to increase the firm's sales, under both quantity and price competition. This result is in contrast to the previous literature and hinges on the fact that with a more aggressive manager rival firms earn lower profits and are willing to sell out at a lower price. \\ However, as a side--effect of such a contract, the manager might take over more rivals than would be profitable.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/148.pdf
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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 148.

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Date of creation: Nov 1995
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Handle: RePEc:upf:upfgen:148

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Web page: http://www.econ.upf.edu/

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