Ex Post Merger Evaluations and Strategic Pre-Merger Investments

Reprint No. 2012:50

Author(s): Richard Friberg, Pehr-Johan Norbäck and Lars PerssonYear: 2012 Title: Journal of Competition Law and Economics Volume (No.): 8 (4) Pages: 831–848
Online article (restrictions may apply)
Preliminary version

We present a model that warns against a mechanical comparison of pre- and postmerger prices. The starting point of the article is that both the seller and the buyer take into account how the acquisition price is affected by pre-merger investments. We derive conditions under which the selling of a firm triggers overinvestment by both the acquirer and the target. Under Cournot competition, linear demand, and quadratic investment costs, we show that these incentives to overinvest can lead to a lower price in a post-acquisition duopoly than in an ongoing triopoly. This finding suggests a backward-looking efficiency defense in the merger control.

Friberg, Richard, Pehr-Johan Norbäck and Lars Persson (2012), "Ex Post Merger Evaluations and Strategic Pre-Merger Investments". Journal of Competition Law and Economics 8(4), 831–848.

Pehr-Johan Norbäck


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Lars Persson


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