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Research Institute of Industrial Economics (IFN) Working Paper Series

No 777:
Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets

Richard Friberg (), Pehr-Johan Norbäck () and Lars Persson ()

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 those of an ongoing triopoly. Our analysis warns against a mechanical use of pre-merger benchmarks in ex post merger evaluations.

Keywords: Mergers & Acquisitions; Ownership; Auctions; Strategic Investments; Merger Evaluations; (follow links to similar papers)

JEL-Codes: L13; L40; L66; (follow links to similar papers)

34 pages, November 13, 2008

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