nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒12‒07
one paper chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets By Friberg, Richard; Norbäck, Pehr-Johan; Persson, Lars

  1. By: 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.
    Keywords: Mergers & Acquisitions; Ownership; Auctions; Strategic Investments; Merger Evaluations
    JEL: L13 L40 L66
    Date: 2008–11–13
    URL: http://d.repec.org/n?u=RePEc:hhs:iuiwop:0777&r=ind

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