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

  • Friberg, Richard


    (Stockholm School of Economics)

  • Norbäck, Pehr-Johan


    (Research Institute of Industrial Economics (IFN))

  • Persson, Lars


    (Research Institute of Industrial Economics (IFN))

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.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 777.

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Length: 34 pages
Date of creation: 13 Nov 2008
Date of revision:
Handle: RePEc:hhs:iuiwop:0777
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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