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Ding, Wei and Fan, Cuihong and Wolfstetter, Elmar G. (October 2010): Horizontal mergers with synergies: first-price vs. profit-share auction. SFB/TR 15 Discussion Paper No. 336
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Abstract

We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target. Two auction rules are considered: standard first-price and profit-share auctions, supplemented by entry fees. Since non-merged firms benefit from a merger if the synergies are low, bidders are subject to a positive externality. Nevertheless, pooling does not occur; and the profit-share auction is strictly more profitable than the first-price auction, regardless of whether firms observe the synergy parameter or only the winning bid before they play the oligopoly game.