Munich Personal RePEc Archive

Optimal Acquisition Strategies in Unknown Territories

Koska, Onur A. and Staehler, Frank (2014): Optimal Acquisition Strategies in Unknown Territories. Published in: Journal of Institutional and Theoretical Economics , Vol. 170, No. 3 (September 2014): pp. 406-426.

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Abstract

This paper investigates the optimal acquisition strategy of a foreign investor, who wants to acquire one out of two local firms, under incomplete information. The response to acquisition offers is also a signal on firm productivity, affecting future competition. We identify a competition effect (firms compete for acquisition) and a revelation effect (firms reveal their productivities). These effects reduce the rejection profits and increase the acceptance probability. If the investor makes simultaneous offers, the revelation effect is a potential threat because a firm may signal low productivity, but may not be acquired. If, however, the investor makes offers sequentially, this threat does not exist, making sequential offers the optimal acquisition strategy.

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