2012

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.
 


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.

Pehr-Johan Norbäck

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Lars Persson

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lars.persson@ifn.se

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Andreas Bergh, IFN and Lund University, is one of the authors of this book. The Timbro Sharing Economy Index is the first global index of the sharing economy. The index has been compiled using traffic volume data and scraped data, and provides a unique insight into the driving factors behind the peer-to-peer economy.

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