The Insidersâ€™ Dilemma: An Experiment on Merger Formation
This paper tests the insidersâ€™ dilemma hypothesis in a laboratory experiment. The insidersâ€™ dilemma means that a profitable merger does not occur, because it is even more profitable for each firm to unilaterally stand as an outsider (Stigler, 1950; Kamien and Zang, 1990, 1993). The experimental data provides support for the insidersâ€™ dilemma, and thereby for endogenous rather than exogenous merger theory. More surprisingly, our data suggests that fairness (or relative performance) considerations also make profitable mergers difficult. Mergers that should occur in equilibrium do not, since they require an unequal split of surplus. Copyright Springer Science + Business Media, Inc. 2005
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