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The Incentives for Takeover in Oligopoly

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  • Roman Inderst
  • Christian Wey

Abstract

We present a model of takeover where the target optimally sets its reserve price. Under relatively standard symmetry restrictions, we obtain a unique equilibrium. The probability of takeover is only a function of the number of .rms and of the insiders. share of total industry gains due to the increase in concentration. Our main application is to the linear Cournot and Bertrand models. A takeover is more likely under Bertrand competition if goods are substitutes and more likely under Cournot competition if goods are complements.

Suggested Citation

  • Roman Inderst & Christian Wey, 2004. "The Incentives for Takeover in Oligopoly," Discussion Papers of DIW Berlin 423, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp423
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    Cited by:

    1. Granier, Laurent & Podesta, Marion, 2010. "Bundling and Mergers in Energy Markets," Energy Economics, Elsevier, vol. 32(6), pages 1316-1324, November.
    2. repec:ebl:ecbull:v:4:y:2008:i:14:p:1-5 is not listed on IDEAS
    3. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," IEHAS Discussion Papers 0213, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    4. Felix Höffler, 2008. "On the consistent use of linear demand systems if not all varieties are available," Economics Bulletin, AccessEcon, vol. 4(14), pages 1-5.
    5. Alberto Salvo, 2010. "Sequential Cross-border Mergers in Models of Oligopoly," Economica, London School of Economics and Political Science, vol. 77(306), pages 352-383, April.
    6. 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.
    7. Banal-Estanol, A. & Heidhues, P., 2006. "Merged clusters during economic booms," Working Papers 06/07, Department of Economics, City University London.
    8. Christos Cabolis & Constantine Manasakis & Emmanuel Petrakis, 2008. "Horizontal Mergers and Acquisitions with Endogenous Efficiency Gains," Working Papers 0817, University of Crete, Department of Economics.
    9. Roland Kirstein, 2013. "Fight or buy? A comparison of internationalization strategies," FEMM Working Papers 130003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    10. Roberto Burguet & Ramon Caminal, 2015. "Bargaining Failures And Merger Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1019-1041, August.
    11. Albert Banal‐Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2010. "Screening And Merger Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 794-817, December.
    12. Pagnozzi, Marco & Rosato, Antonio, 2016. "Entry by takeover: Auctions vs. bilateral negotiations," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 68-84.
    13. Petrakis, Emmanuel & Moreno Ruiz, Diego & Manasakis, C. & Cabolis, C., 2016. "R&D investments fostering horizontal mergers," UC3M Working papers. Economics 23280, Universidad Carlos III de Madrid. Departamento de Economía.
    14. Felix Höffler, 2008. "On the consistent use of linear demand systems if not all varieties are available," WHU Working Paper Series - Economics Group 08-01, WHU - Otto Beisheim School of Management.
    15. Rosato, Antonio, 2008. "“Matching Auctions” for Hostile Takeovers: A Model with Endogenous Target," MPRA Paper 15083, University Library of Munich, Germany, revised 07 Jan 2009.

    More about this item

    Keywords

    Takeover bidding; Merger incentives; Oligopoly;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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