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Weddings with Uncertain Prospects � Mergers under Asymmetric Information

Author

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  • Thomas Borek
  • Stefan Buehler

    (Socioeconomic Institute, University of Zurich)

  • Armin Schmutzler

    (Socioeconomic Institute, University of Zurich)

Abstract

We provide a framework for analyzing bilateral mergers when there is two-sided asymmetric information about firms� types. We show that there is always a "no-merger" equilibrium where firms do not consent to a merger, irrespective of their type. There may also be a "cut-off" equilibrium if the expected merger returns satisfy a suitable single crossing condition, which will hold if a firm�s merger returns are "essentially monotone decreasing" in its type. Applying our analysis to the linear Cournot model, we show how the merger pattern depends on the cost effects of mergers, the extent of uncertainty, and the way profits are split. Specifically, we show how increasing uncertainty about competitor types may foster mergers as firms hope for strong rationalization effects.

Suggested Citation

  • Thomas Borek & Stefan Buehler & Armin Schmutzler, 2002. "Weddings with Uncertain Prospects � Mergers under Asymmetric Information," SOI - Working Papers 0213, Socioeconomic Institute - University of Zurich, revised Feb 2004.
  • Handle: RePEc:soz:wpaper:0213
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    File URL: http://www.econ.uzh.ch/static/wp_soi/wp0213.pdf
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    References listed on IDEAS

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    Cited by:

    1. Stefan Buehler & Justus Haucap, 2004. "Mobile Number Portability," Journal of Industry, Competition and Trade, Springer, vol. 4(3), pages 223-238, September.
    2. Hans Gersbach & Armin Schmutzler, 2004. "Globalization and General Worker Training," SOI - Working Papers 0403, Socioeconomic Institute - University of Zurich.
    3. Buehler, Stefan & Haucap, Justus, 2006. "Strategic outsourcing revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 325-338, November.
    4. Albert Banal‐Estañol & Jo Seldeslachts, 2011. "Merger Failures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 589-624, June.
    5. Polk, Andreas & Schmutzler, Armin, 2005. "Lobbying against environmental regulation vs. lobbying for loopholes," European Journal of Political Economy, Elsevier, vol. 21(4), pages 915-931, December.
    6. Harry Telser & Karolin Becker & Peter Zweifel, 2004. "Validity and Reliability of Willingness-to-Pay Estimates: Evidence from Two Overlapping Discrete-Choice Experiments," SOI - Working Papers 0412, Socioeconomic Institute - University of Zurich, revised Mar 2008.
    7. Stefan Buehler & Armin Schmutzler, 2005. "On The Role of Access Charges Under Network Competition," SOI - Working Papers 0501, Socioeconomic Institute - University of Zurich.
    8. Peter Zweifel & Harry Telser & Stephan Vaterlaus, 2005. "Consumer Resistance Against Regulation: The Case of Health Care," SOI - Working Papers 0505, Socioeconomic Institute - University of Zurich.
    9. Peter Zweifel, 2005. "The Purpose and Limits of Social Health Insurance," SOI - Working Papers 0509, Socioeconomic Institute - University of Zurich, revised Sep 2005.
    10. Stefan Boes & Rainer Winkelmann, 2006. "Ordered response models," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 90(1), pages 167-181, March.
    11. Buehler Stefan & Schmutzler Armin, 2005. "Asymmetric Vertical Integration," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-27, January.
    12. Michael Breuer, 2004. "Optimal Insurance Contracts without the Non-Negativity Constraint on Indemnities Revisited," SOI - Working Papers 0406, Socioeconomic Institute - University of Zurich.
    13. Michael Breuer, 2003. "Multiple Losses, Ex-Ante Moral Hazard, and the Non-Optimality of the Standard Insurance Contract," SOI - Working Papers 0302, Socioeconomic Institute - University of Zurich, revised Apr 2003.
    14. Harry Telser & Peter Zweifel, 2003. "Validity of Discrete-Choice Experiments - Evidence for Health Risk Reduction," SOI - Working Papers 0313, Socioeconomic Institute - University of Zurich, revised Feb 2005.
    15. Michael Breuer, 2004. "Deductible or Co-Insurance: Which is the Better Insurance Contract under Adverse Selection?," SOI - Working Papers 0401, Socioeconomic Institute - University of Zurich, revised Oct 2004.

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    More about this item

    Keywords

    merger; asymmetric information; oligopoly; single crossing;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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