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Analyzing Mergers under Asymmetric Information : A Simple Reduced-Form Approach

Stefan Bühler, Armin Schmutzler & Thomas Borek

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abstract This paper provides a simple reduced-form framework for analyzing merger decisions in the presence of asymmetric information about firm types, building on Shapiro's (1986) oligopoly model with asymmetric information about marginal costs. We employ this framework to examine what types of firms are likely to be involved in mergers. While we give sufficient conditions under which only lowtype firms merge, as a lemons rationale would suggest, we also argue that these conditions will often be violated in practice. Finally, our analysis shows how signaling considerations a¤ect merger decisions.
   
type working paper (English)
   
keywords Merger, asymmetric information, oligopoly
   
date of appearance 2008
publisher University of St. Gallen, Department of Economics Working Paper 2008-15
review not reviewed
   
citation Bühler, S., Schmutzler, A., & Borek, T. (2008). Analyzing Mergers under Asymmetric Information: A Simple Reduced-Form Approach: University of St. Gallen, Department of Economics Working Paper 2008-15.