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ERC WORKING PAPERS

A Consumer-Surplus Standard in Merger Approvals, Foreign Direct Investment, and Welfare

Onur A. Koska

Abstract:
This study scrutinizes the ramifications of a consumer-surplus standard in approvals of mergers & acquisitions (i) on an investor's choice between acquiring a firm's existing assets (via negotiations or auctions) and investing in new assets under both complete and incomplete information; and (ii) on welfare. Any firm acquisition fulfilling the consumer-surplus standard is in the best interest of the investor, who prefers to be well informed on acquisition gains and prefers sequential offers. A local firm appropriates a bigger share from acquisition gains in an auction, and prefers generating information asymmetries. Welfare improves with a larger scope for ex-post firm heterogeneity.

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2016

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