Rosato, Antonio (2008): “Matching Auctions” for Hostile Takeovers: A Model with Endogenous Target.
Download (518kB) | Preview
In this paper we analyze incentives for a potential entrant to get into an oligopolistic Cournot-like market by taking over one of the incumbents and we derive the conditions under which the hostile merger is possible and profitable. The key-feature is that the target of the takeover is endogenously determined and this is also the main difference with respect to the previous literature on this topic. Actually, the main objective of our analysis is that of determining why and how the buyer chooses as target this firm rather than that one. The takeover game is modeled as a “matching auction” in which the potential entrant has to make a first and final offer and the other bidders are asked to match this offer. We find different types of SPNE depending upon the values of the parameters. Whenever entry takes place it reduces incumbents' profits and raises consumers' welfare at the same time.
|Item Type:||MPRA Paper|
|Original Title:||“Matching Auctions” for Hostile Takeovers: A Model with Endogenous Target|
|English Title:||“Matching Auctions” for Hostile Takeovers: A Model with Endogenous Target|
|Keywords:||Takeovers; Matching Auctions; Mergers; SPNE|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
D - Microeconomics > D4 - Market Structure and Pricing > D44 - Auctions
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games
|Depositing User:||Dr. Antonio Rosato|
|Date Deposited:||09. May 2009 07:19|
|Last Modified:||14. Feb 2013 11:01|
Arrow, K. (1962) “Economic Welfare and the Allocation of Resources for Invention” in The Rate and Direction of Inventive Activity: Economic and Social Factors. NBER Conference no. 13. Princeton University Press.
Berkovitch, E., and Khanna, N. (1990) “How Target Shareholders Benefit from Value-reducing Defensive Strategies in Takeovers”, Journal of Finance 45, pp. 137-156.
Bulow, J. I., Huang, M. and Klemperer, P. D. (1999) “Toeholds and Takeovers”, Journal of Political Economy 107, pp. 427-454.
Bulow, J. I. and Klemperer, P. D. (1996) “Auctions vs. Negotiations”, American Economic Review 86, pp. 180-194.
Burkart, M. and Panunzi, F. (2006) “Takeovers”, ECGI Working Paper Series in Finance 118, Bruxelles.
Che, Y. and Lewis, T. R. (2007) “The Role of Lockups in Takeover Contests”, RAND Journal of Economics 38, pp. 648-669.
Cabrerizo, A. B. (1997) “When Do Bidders Purchase a Toehold? Theoty and Tests”, Working Paper, INSEAD.
Cramton, P. (1998) “Auctions and Takeovers”, in New Palgrave Dictionary of Law and Economics, Peter Neuman (ed.), London: MacMillan Press, 1. pp.122-125.
Cramton, P. and Schwartz, A. (1991) “Using Auction Theory to Inform Takeover Regulation”, Journal of Law, Economics and Organization 7, pp. 27-53.
Deneckere, R. and Davidson, C. (1985) “Incentives to Form Coalitions with Bertrand Competition”, RAND Journal of Economics 16, pp. 473-486.
Dasgupta, S. and Tsui, K. (2003) “A “Matching Auction” for Targets with heterogeneous bidders”, Journal of Financial Intermediation 12, pp. 331-364.
Farrell, J. and Shapiro, C. (1990) “Horizontal Mergers: An Equilibrium Analysis”, American Economic Review 80, pp. 107-126.
Fishman, M. J. (1988) “A Theory of Preemptive Takeover Bidding”, RAND Journal of Economics 19, pp. 88-101.
Fridolofsson, S. O. and Stennek, J. (2000) “Why Mergers Reduce Profits and Raise Share Prices: A Theory of Preemptive Mergers”, IUI Working Paper, Stockholm.
Gilbert, R. and Newbery, D. (1982) “Preemptive Patenting and the Persistence of Monopoly”, American Economic Review 72, pp. 514-526.
Grossman, S., and Hart, O. (1980) “Takeover Bids, the Free-rider problem, and the Theory of the Corporation”, Bell Journal of Economics 11, pp. 42-64.
Herzel, L. and Shepro, R. W. (1990) Bidders and Targets, Basil SWI: Blackwell.
Herzel, L. and Shepro, R. W. (1992) “Regulation of Takeovers”, in New Palgrave Dictionary of Money and Finance, P. Newman, M. Milgate and J. Eatwell (eds.), London, UK: MacMillan Press.
Hoppe, H., Jehiel, P. and Moldovanu, B. (2006) “License Auctions and Market Structure”, Journal of Economics and Management Strategy 15, pp. 371-396.
Inderst, R. and Wey, C. (2004) “The Incentives for Takeover in Oligopoly”, International Journal of Industrial Organization 22, pp. 1067-1089.
Jehiel, P. and Moldovanu, B. (2000) “Auctions with Downstream Interaction among Buyers”, RAND Journal of Economics 31, pp. 768-791.
Jensen, M. (1986) “Agency Cost of Free Cash Flow, Corporate Finance and Takeovers”, American Economic Review 776, pp. 323-329.
Jensen, M. and Ruback, R. S. (1983) “The Market for Corporate Control”, Journal of Financial Economics 11, pp. 5-50.
Kamien, M. I. and Tauman, Y. (1984) “The Private Value of a Patent: A Game Theoretic Analysis”, Journal of Economics (supplement) 4, pp. 93-118.
Kamien, M. I. and Tauman, Y. (1986) “Fees versus Royalties and the Private Value of a Patent”, Quarterly Journal of Economics 101, pp. 471-492.
Katz, M. and Shapiro, C. (1985) “On the Licensing of Innovations”, RAND Journal of Economics 16, pp. 504-520.
Katz, M. and Shapiro, C. (1986) “How to License Intangible Property”, Quarterly Journal of Economics 101, pp. 567-590.
Klemperer, P. (1998) “Almost Common Value Auctions: The 'Wallet Game' and its Applications to Takeover Battles and Airwaves Auctions”, European Economic Review 42, pp. 757-769.
Klemperer, P. (2004) Auctions: Theory and Practice, Princeton NJ: Princeton University Press.
Levin, D. (1990) “Horizontal Mergers: The 50-Percent Benchmark”, American Economic Review 80, pp. 1238-1245.
McAfee, R. P. and McMillan, J. (1989) “Government Procurement and International Trade”, Journal of Interational Economics 26, pp. 291-308.
Milgrom, P. and Weber, R.J. (1982) “A Theory of Auctions and Competitive Bidding”, Econometrica 50, pp. 1089-1122.
Molnar, J. (2000a) “Auctions with Endogenous Externalities and Signaling”, work in progress.
Molnar, J. (2000b) “Preemptive Horizontal Mergers: Theory and Evidence”, Working Paper, Department of Economics, Northwestern University, Evanston IL.
Motta, M. (2004) Competition Policy: Theory and Practice, Cambridge UK: Cambridge University Press.
Myerson, R. B. (1981) “Optimal Auction Design”, Mathematics of Operations Research 6, pp. 58-73.
Perry, M. K. and Porter, R. H. (1985) “Oligopoly and the Incentive for Horizontal Merger”, American Economics Review 75, pp. 219-277.
Riley, J. and Samuelson, W. (1981) “Optimal Auctions”, American Economic Review 71, pp. 381-392.
Riley, J. (1999) “Optimal Reserve Prices - further remarks”, Working Paper,Department of Economics, UCLA, Los Angeles CAL.
Roll, R. (1986) “The Hubris Hypothesis of Corporate Takeovers”, Journal of Business 59, pp. 197-216.
Salant, S. W., Switzer, S. and Reynolds, R. J. (1983) “Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium”, Quarterly Journal of Economics 98, pp. 185-199.
Schwartz, A. (1986) “Search Theory and the Tender Offer Auction”, Journal of Law, Economics and Organization 2, pp. 229-253.
Shleifer, A. and Vishny, R. W. (1989) “Management Entrenchment: The Case of Manager-Specific investments”, Journal of Financial Economics 25, pp. 123-139.
Stigler, G. J. (1990), “ Monopoly and Oligopoly by Merger”, American Economic Review Papers and Proceedings 40, pp. 23-34.
Tirole, J. (1988) The Theory of Industrial Organization, Boston MA: the MIT Press.