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Collusive Bidding in Hostile Takeovers

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  • McAfee, R Preston, et al

Abstract

Bidders in hostile takeovers have colluded in five separate instances. It is found that these collusive agreements did not affect the target's price significantly. A model is developed to explain this observation. A welfare analysis indicates that a positive probability of cartel formation can be socially beneficial and may or may not be beneficial to the target's shareholders, depending on the process generating takeover attempts. This sheds light on the existing policy debate concerning regulations of collusive agreements. An analysis of the existing case law is provided, which indicates that such collusive arrangements are legal at present. Copyright 1993 by MIT Press.

Suggested Citation

  • McAfee, R Preston, et al, 1993. "Collusive Bidding in Hostile Takeovers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 449-482, Winter.
  • Handle: RePEc:bla:jemstr:v:2:y:1993:i:4:p:449-82
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    Cited by:

    1. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-1575, September.
    2. Boone, Audra L. & Mulherin, J. Harold, 2011. "Do private equity consortiums facilitate collusion in takeover bidding?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1475-1495.
    3. Gupta, Madhurima & Lebrun, Bernard, 1999. "First price auctions with resale," Economics Letters, Elsevier, vol. 64(2), pages 181-185, August.
    4. Jun Zhang, 2008. "Simultaneous Signaling in Elimination Contests," Working Papers 1184, Queen's University, Department of Economics.
    5. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-75, September.

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