Compulsory or Voluntary Pre-Merger Notification? Theory and Some Evidence
Monash University - Department of Economics
University of Melbourne; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)
January 24, 2010
International Journal of Industrial Organization, Vol. 28, No. 1, 2010
We compare the prevailing system of compulsory pre-merger notification with the Australian system of voluntary pre-merger notification. It is shown that, for a non-trivial set of parameter values, a perfect Bayesian equilibrium exists in mixed strategies in which the regulator investigates un-notified mergers with probability less than one and the parties choose notification with probability less than one. Thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the merging parties as well as to the regulator.
Keywords: Merger Regulation, Pre-Merger Notification, Abnormal Returns
JEL Classification: D21, G34, K21, L40Accepted Paper Series
Date posted: January 25, 2010
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