Similar bidders in takeover contests
Dai, Yun Gryglewicz, Sebastian Smit, Han TJ De Maeseneire, Wouter
Dai, Yun
Gryglewicz, Sebastian
Smit, Han TJ
De Maeseneire, Wouter
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2013-11
Journal
Games and Economic Behavior
Book
Publication Volume
82
Publication Issue
November
Publication Begin page
544
Publication End page
561
Publication Number of pages
Collections
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.
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Keywords
38 Economics, 3801 Applied Economics