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Mergers Mechanisms

  • S. Viswanathan
  • S. Brusco
  • G. Lopomo

A firm can merge with one of n potential partners. The owner of each firm has private information about both his firm's stand-alone value and a component of the synergies that would be realized by the merger involving his firm. We characterize incentive-efficient mechanisms in two cases. First, we assume that the value of any newly formed partnership is verifiable, hence transfers can be made contingent on the new information accruing after the merger. Second, we study the case of uncontingent rules. In the first case, we show that it is not optimal, in general, to redistribute shares of non-merging firms, and identify necessary and sufficient conditions for the implementability of efficient merger rules. In the second case, we show that the first-best can be obtained i) always, if the synergy values are privately known but the firms' stand-alone values are observable; ii) only with sufficiently large synergies, if the firms' stand-alone are privately known; and iii) never, if the set of feasible mechanisms is restricted to "auctions in shares"

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 317.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:317
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  1. Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-45, September.
  2. Makowski Louis & Mezzetti Claudio, 1993. "The Possibility of Efficient Mechanisms for Trading an Indivisible Object," Journal of Economic Theory, Elsevier, vol. 59(2), pages 451-465, April.
  3. Claudio Mezzetti, 2003. "Auction Design with Interdependent Valuations: The Generalized Revelation Principle, Efficiency, Full Surplus Extraction and Information Acquisition," Working Papers 2003.21, Fondazione Eni Enrico Mattei.
  4. Fieseler, Karsten & Kittsteiner, Thomas & Moldovanu, Benny, 2003. "Partnerships, lemons, and efficient trade," Journal of Economic Theory, Elsevier, vol. 113(2), pages 223-234, December.
  5. Jehiel, Phillipe & Moldovanu, Benny, 1998. "Efficient Design with Interdependent Valuations," Sonderforschungsbereich 504 Publications 98-22, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  6. Hansen, Robert G, 1985. "Auctions with Contingent Payments," American Economic Review, American Economic Association, vol. 75(4), pages 862-65, September.
  7. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, EconWPA, revised 28 Apr 1998.
  8. repec:rje:randje:v:37:y:2006:1:p:1-22 is not listed on IDEAS
  9. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  10. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
  11. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
  12. Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, vol. 52(4), pages 995-1005, July.
  13. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  14. Cremer, Jacques, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 746, September.
  15. Claudio Mezzetti, 2004. "Mechanism Design with Interdependent Valuations: Efficiency," Econometrica, Econometric Society, vol. 72(5), pages 1617-1626, 09.
  16. Andrzej Skrzypacz & Peter M. DeMarzo & Ilan Kremer, 2004. "Bidding with Securities: Auctions and Security Design," Econometric Society 2004 North American Winter Meetings 637, Econometric Society.
  17. Matthew Rhodes-Kropf & S. Viswanathan, 2004. "Market Valuation and Merger Waves," Journal of Finance, American Finance Association, vol. 59(6), pages 2685-2718, December.
  18. Hansen, Robert G, 1987. "A Theory for the Choice of Exchange Medium in Mergers and Acquisitions," The Journal of Business, University of Chicago Press, vol. 60(1), pages 75-95, January.
  19. Matthew Rhodes-Kropf & S. Viswanathan, 2000. "Corporate Reorganizations and Non-Cash Auctions," Journal of Finance, American Finance Association, vol. 55(4), pages 1807-1854, 08.
  20. Matthew Rhodes-Kropf & S. Viswanathan, 2005. "Financing Auction Bids," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 789-815, Winter.
  21. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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