Sweetening the Pill: A Theory of Waiting To Merge
University of Oslo - Department of Economics
January 12, 2016
Merger policy is a permission-granting activity by government in which there may be disincentives to seek permission because of the benefit from having other firms merge. We set up a sequential merger game with endogenized antitrust policy to study these disincentives. In particular, we delineate a pill-sweetening motive for waiting to merge: a firm may choose to let other firms move first, in order to get more mergers approved. We report the prevalence of this and other motives for not merging at once and find it to hinge on efficiency gains from a merger, differently-sized firms, firms' production technology, the presence of an antitrust authority, and the alignment of interests between antitrust authorities and firms.
Number of Pages in PDF File: 39
Keywords: Mergers, Antitrust policy
JEL Classification: L11, L13, L41, G34
Date posted: August 18, 2008 ; Last revised: January 12, 2016