Horizontal Mergers Under Asymmetric Information About Synergies

18 Pages Posted: 11 Sep 2015

See all articles by Hisashi Sawaki

Hisashi Sawaki

Okayama University - Economics

Date Written: September 2015

Abstract

This paper analyses a situation in which there are three quantity‐setting firms, two of which are considering whether or not to merge. When these two firms have private information about the potential cost‐saving synergies of the merger, they may have an incentive to overstate them. This is because if they succeed in making the non‐merging rival firm believe that the synergies are high, the rival firm reduces output and the merger becomes more profitable. Under some conditions, anticipating that the rival will form such a belief, low‐synergy firms that would never merge under complete information will mimic high‐synergy firms by merging. Such pooling behaviour by the merging firms can have a negative impact on social welfare.

JEL Classification: L49, D82, L13

Suggested Citation

Sawaki, Hisashi, Horizontal Mergers Under Asymmetric Information About Synergies (September 2015). Australian Economic Papers, Vol. 54, Issue 3, pp. 167-184, 2015, Available at SSRN: https://ssrn.com/abstract=2658858 or http://dx.doi.org/10.1111/1467-8454.12049

Hisashi Sawaki (Contact Author)

Okayama University - Economics ( email )

United States

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