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

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  • Ding, Wei
  • Fan, Cuihong
  • Wolfstetter, Elmar G.

Abstract

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.

Suggested Citation

  • Ding, Wei & Fan, Cuihong & Wolfstetter, Elmar G., 2013. "Horizontal mergers with synergies: Cash vs. profit-share auctions," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 382-391.
  • Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:382-391
    DOI: 10.1016/j.ijindorg.2013.06.005
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    References listed on IDEAS

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    Cited by:

    1. Onur A. Koska, 2016. "A Consumer-Surplus Standard in Merger Approvals, Foreign Direct Investment, and Welfare," ERC Working Papers 1612, ERC - Economic Research Center, Middle East Technical University, revised Oct 2016.
    2. Byoung Jun & Elmar Wolfstetter, 2014. "Security bid auctions for agency contracts," Review of Economic Design, Springer;Society for Economic Design, vol. 18(4), pages 289-319, December.
    3. Onur A. Koska & Ilke Onur & Frank Stähler, 2015. "The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities," CESifo Working Paper Series 5256, CESifo Group Munich.
    4. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    5. Wei Ding, 2015. "Decentralized union-oligopoly bargaining when wages signal strength," Journal of Economics, Springer, vol. 114(3), pages 239-254, April.
    6. Fan, Cuihong & Wolfstetter, Elmar G., 2015. "The merger-paradox: A tournament-based solution," Economics Letters, Elsevier, vol. 127(C), pages 35-38.
    7. Pagnozzi, Marco & Rosato, Antonio, 2016. "Entry by takeover: Auctions vs. bilateral negotiations," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 68-84.
    8. Juan Pablo Herrera Saavedra & Dennis Sánchez Navarro, 2016. "Efectos de integraciones de firmas en mercados de bienes homogéneos," REVISTA FINANZAS Y POLÍTICA ECONÓMICA, UNIVERSIDAD CATOLICA DE COLOMBIA, vol. 8(1), pages 157-164, March.

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