Getting a Better Price: Strategic Behavior before Changes in Ownership of Corporate Assets
35 Pages Posted: 2 Dec 2008
Date Written: October 28, 2008
Abstract
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 that of an ongoing triopoly. Our analysis warns against a mechanical use of pre-merger benchmarks in ex post merger evaluations.
Keywords: Mergers & Acquisitions, Asset Ownership, Restructuring, Oligopoly
JEL Classification: L13, L40, L66
Suggested Citation: Suggested Citation
Friberg, Richard and Norbäck, Pehr-Johan and Persson, Lars, Getting a Better Price: Strategic Behavior before Changes in Ownership of Corporate Assets (October 28, 2008). IFN Working Paper No. 777. Available at SSRN: https://ssrn.com/abstract=1309486 or http://dx.doi.org/10.2139/ssrn.1309486
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