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Horizontal mergers with synergies: Cash vs. profit-share auctions

Listed author(s):
  • Ding, Wei
  • Fan, Cuihong
  • Wolfstetter, Elmar G.

We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target and bidders can influence rivals' beliefs through their bids. We compare cash and profit-share auctions, first- and second-price, supplemented by entry fees. Since non-merged firms benefit from a merger if synergies are low, bidders are subject to a positive externality with positive probability; nevertheless, pooling does not occur. Unlike cash auctions, profit-share auctions are not revenue equivalent, and the second-price profit-share auction is more profitable than the other auctions.

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File URL: http://www.sciencedirect.com/science/article/pii/S016771871300074X
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 5 ()
Pages: 382-391

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Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:382-391
DOI: 10.1016/j.ijindorg.2013.06.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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