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“Matching Auctions” for Hostile Takeovers: A Model with Endogenous Target

  • Rosato, Antonio

In this paper we analyze incentives for a potential entrant to get into an oligopolistic Cournot-like market by taking over one of the incumbents and we derive the conditions under which the hostile merger is possible and profitable. The key-feature is that the target of the takeover is endogenously determined and this is also the main difference with respect to the previous literature on this topic. Actually, the main objective of our analysis is that of determining why and how the buyer chooses as target this firm rather than that one. The takeover game is modeled as a “matching auction” in which the potential entrant has to make a first and final offer and the other bidders are asked to match this offer. We find different types of SPNE depending upon the values of the parameters. Whenever entry takes place it reduces incumbents' profits and raises consumers' welfare at the same time.

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File URL: https://mpra.ub.uni-muenchen.de/15083/1/MPRA_paper_15083.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15083.

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Date of creation: 26 Jun 2008
Date of revision: 07 Jan 2009
Handle: RePEc:pra:mprapa:15083
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  11. Peter Cramton & Alan Schwartz, 1991. "Using Auction Theory to Inform Takeover Regulation," Papers of Peter Cramton 91jleo, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  12. 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.
  13. Inderst, Roman & Wey, Christian, 2002. "The Incentives for Takeover in Oligopoly," CEPR Discussion Papers 3163, C.E.P.R. Discussion Papers.
  14. Dasgupta, Sudipto & Tsui, Kevin, 2003. "A "matching auction" for targets with heterogeneous bidders," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 331-364, October.
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