Working Paper: CEPR ID: DP5016
Authors: Tobias Lindqvist; Johan Stennek
Abstract: This paper tests the insiders? dilemma hypothesis in a laboratory experiment. The insiders? dilemma means that a profitable merger does not occur, because it is even more profitable for each firm to unilaterally stand as an outsider (Stigler, 1950; Kamien and Zang, 1990 and 1993). The experimental data provides support for the insiders? dilemma, and thereby for endogenous rather than exogenous merger theory. More surprisingly, our data suggests that fairness (or relative performance) considerations also make profitable mergers difficult. Mergers that should occur in equilibrium do not, since they require an unequal split of surplus.
Keywords: antitrust; coalition formation; experiment; insiders dilemma; mergers
JEL Codes: C78; C92; G34; L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| duopoly profit (D43) | incidence of mergers (G34) |
| fairness considerations (D63) | rejection of profitable mergers (G34) |
| duopoly profit (D43) | monopolization difficulty (L12) |
| fairness considerations (D63) | seller decisions (L14) |