This Website uses cookies. By using this website you are agreeing to our use of cookies and to the terms and conditions listed in our data protection policy. Read more

Journal of Competition Law and Economics

Ex Post Merger Evaluations and Strategic Pre–Merger Investments

Scientific Article in English
Reference
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. doi.org/10.1093/joclec/nhs027

Authors
Richard Friberg, Pehr-Johan Norbäck, Lars Persson

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.

Pehr-Johan Norbäck

+46 (0)8 665 4522
+46 (0)73 574 3379
pehr-johan.norback@ifn.se