Weddings with Uncertain Prospects - Mergers under Asymmetric Information
We provide a framework for analysing bilateral mergers when there is two-sided asymmetric information about firms’ types. We introduce the concepts of essentially monotone decreasing (EMD) and increasing (EMI) functions, which generalize the respective mono-tonicity properties. If the profit differential between post-merger and pre-merger profits satisfies EMD, low-state firms gain more than high-state firms from mergers in expectation. Using this result, we characterize the equilibria of merger games with simultaneous and sequential moves. The application of our framework to specific oligopoly models illustrates that the introduction of two-sided asymmetric information may lead to considerable changes in the predicted merger pattern.
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- Hviid, Morten & Prendergast, Canice, 1993. "Merger Failure and Merger Profitability," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 371-386, December.
- Barros, Pedro Pita, 1998. "Endogenous mergers and size asymmetry of merger participants," Economics Letters, Elsevier, vol. 60(1), pages 113-119, July.
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- Athey, S., 1996. "Characterizing Properties of Stochastic Objective Functions," Working papers 96-1, Massachusetts Institute of Technology (MIT), Department of Economics.
- Gal-Or, Esther, 1988. "The Informational Advantages or Disadvantages of Horizontal Mergers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 639-661, November.
- Garth Saloner, 1987. "Predation, Mergers, and Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 165-186, Summer.
- Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
- Ravenscraft, David J. & Scherer, F. M., 1989. "The profitability of mergers," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 101-116, March.
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