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Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets

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Listed:
  • Friberg, Richard

    () (Stockholm School of Economics)

  • Norbäck, Pehr-Johan

    () (Research Institute of Industrial Economics (IFN))

  • Persson, Lars

    () (Research Institute of Industrial Economics (IFN))

Abstract

We propose a model of investments prior to corporate ownership changes. We derive conditions under which the selling of a firm triggers overinvestment by both the seller and the buyer prior to the asset transfer. In a setting with Cournot competition, we show that these incentives can drive the consumer prices in a post-acquisition duopoly below those of an ongoing triopoly. Our analysis warns against a mechanical use of pre-merger benchmarks in ex post merger evaluations.

Suggested Citation

  • Friberg, Richard & Norbäck, Pehr-Johan & Persson, Lars, 2008. "Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets," Working Paper Series 777, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0777
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    References listed on IDEAS

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    Keywords

    Mergers & Acquisitions; Ownership; Auctions; Strategic Investments; Merger Evaluations;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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