Working Paper Series
Tobias Lindqvist and Johan Stennek
The Insiders' Dilemma: An Experiment on Merger Formation
Abstract: This paper tests the insiders' dilemma hypothesis in a
laboratory experiment. The insiders' dilemma means that a profitable merger
does not occur, because it is even more profitable for each firm to
unilaterally stand as an outsider (Kamien and Zang, 1990 and 1993). The
experimental data provides support for the insiders' dilemma, and thereby
for endogenous rather than exogenous merger theory. More surprisingly, our
data suggests that fairness considerations also make profitable mergers
difficult. Mergers that should occur in equilibrium do not, since they
require an unequal split of surplus.
Keywords: Coalition Formation; Experiment; Insiders' Dilemma; Mergers; Antitrust; (follow links to similar papers)
JEL-Codes: C78; C92; G34; L13; L41; (follow links to similar papers)
30 pages, September 19, 2001
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