Waiting to Merge

Posted by D. Daniel Sokol

Eileen Fumagalli, IEFE, Bocconi University and Tore Nilssen, University of Oslo - Department of Economicshave a new paper titled Waiting to Merge.

ABSTRACT: We set up a sequential merger game to study a firm's incentives to pass up on an opportunity to merge with another firm. We find that such incentives may exist when there are efficiency gains from a merger, firms are of different sizes, there is an antitrust authority present to approve mergers, and there is a sufficient alignment of interests between the antitrust authority and the firms. We point out three distinct motives for not merging: the external-effect motive, the bargaining-power motive, and the pill-sweetening motive.