Working Paper No. 777

Getting a Better Price: Strategic Behavior before Changes in Ownership of Corporate Assets

Published: November 13, 2008Pages: 34Keywords: Mergers & Acquisitions; Ownership; Auctions; Strategic Investments; Merger EvaluationsJEL-codes: L13; L40; L66
Published version

Getting a Better Price: Strategic Behavior before Changes in Ownership of Corporate Assets Richard Friberg, Pehr-Johan Norbäck and Lars Persson


We propose a model of investments prior to corporate ownership changes. We derive conditions under which the selling of a firm triggers overinvestment by both the seller and the buyer prior to the asset transfer. In a setting with Cournot competition, we show that these incentives can drive the consumer prices in a post-acquisition duopoly below those of an ongoing triopoly. Our analysis warns against a mechanical use of pre-merger benchmarks in ex post merger evaluations.

Pehr-Johan Norbäck

Contact

Ph: +46 8 665 4522
Mob: +46 73 574 3379
pehr-johan.norback@if...

Lars Persson

Contact

Ph: +46 8 665 4504
lars.persson@ifn.se

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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