Similar Bidders in Takeover Contests
52 Pages Posted: 8 Apr 2011 Last revised: 27 Jul 2013
Date Written: July 19, 2013
Abstract
When bidders in a corporate takeover have related resources and post-acquisition strategies, their valuations of a target are likely to be interdependent. This paper analyzes sequential-entry takeover contests in which similar bidders have correlated private valuations. The level of similarity affects information content of bids and bidding competition. Our model predicts that expected acquisition prices and the probability of multiple-bidder contests are the highest for intermediately similar bidders. We test these predictions in laboratory experiments in which we control the similarity between bidders. The experimental data confirm the non-monotonic effects of similarity on prices and on the frequency of multiple-bidder contents
Keywords: takeover contests, interdependent valuations, information externality, competition intensity, experiment
JEL Classification: G34, D44, D03
Suggested Citation: Suggested Citation
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