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

35 Pages Posted: 2 Dec 2008

See all articles by Richard Friberg

Richard Friberg

Stockholm School of Economics - Department of Economics

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

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

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

Richard Friberg

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9645 (Phone)
+46 8 720 7752 (Fax)

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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