Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2006:10: Modelling firm mergers as a roommate problem

Nikolay Angelov ()
Additional contact information
Nikolay Angelov: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: We propose a way to model firm mergers using a matching game known as the roommate problem, whereby firms are assumed to make preference rankings of potential merger partners. The position of a firm in another firm's ranking is assumed to be governed by an index, which in turn consists of a deterministic part and of a stochastic one, similar to the latent indices used in standard discrete-choice models. Given all firms' preferences, game-theoretic mechanisms lead to a matching whereby each firm is either self-matched or assigned a merger partner. We derive expressions for the probability of a merger between a specific firm pair, and also a log-likelihood function for estimation using firm-specific data. Using a simulation in a setting with groups of three firms involved in roommate games within each group, the model's finite-sample properties are examined.

Keywords: firm mergers; roommate game; matching markets; discrete response

JEL-codes: C15; C25; C78; G32

21 pages, January 20, 2006

Full text files

FULLTEXT01.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Ulrika Ă–jdeby ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 17:14:00.