Thursday, February 5, 2009
Posted by D. Daniel Sokol
ABSTRACT: We set up a sequential merger 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 sufficient alignment of interests between the antitrust authority and the firms. We point out three distinctive motives for not merging: the external-effect motive, the bargaining-power motive, and the pill-sweetening motive.