Compulsory or Voluntary Pre-merger Notification? A Theoretical and Empirical Analysis

Abstract:     
We study a voluntary pre-merger notification game under asymmetric information and characterize perfect Bayesian equilibria. In the separating equilibrium, only the mergers with low private benefits and low social welfare are notified, and subsequently settled into negotiated outcomes. All other types of mergers are not notified and investigated ex post with a positive probability. Among these, mergers with high social welfare are cleared after investigation, and those with high private benefits but low social welfare are challenged by the regulator and contested in the court. In addition, voluntary notification does not lead to more litigation than compulsory notification. These outcomes are similar to those when notification is compulsory, except that voluntary notification leads to substantial savings in the enforcement costs for the regulator and the notification costs for the merging parties. Some of the theoretical predictions are supported from preliminary empirical tests using merger data from Australia where pre-merger notification is voluntary. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at much lower costs to the parties as well as to the regulator.

Number of Pages in PDF File: 30

Keywords: Merger regulation, pre-merger notification, abnormal returns

JEL Classification: D21, G34, K21, L40

working papers series