American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Incomplete Information Bargaining with Applications to Mergers, Investment, and Vertical Integration
American Economic Review
vol. 112,
no. 2, February 2022
(pp. 616–49)
Abstract
We provide an incomplete information bargaining framework that captures the effects of differential bargaining power in markets with multiple buyers and multiple suppliers. The market is modeled as a mechanism that maximizes the expected weighted welfare of the firms, subject to the constraints of incentive compatibility, individual rationality, and no deficit. We show that, in this model, there is no basis for the presumption that vertical integration increases equally weighted social surplus, while it is possible that horizontal mergers that appropriately change bargaining weights increase social surplus. Moreover, efficient bargaining implies that in equilibrium noncontractible investments are efficient.Citation
Loertscher, Simon, and Leslie M. Marx. 2022. "Incomplete Information Bargaining with Applications to Mergers, Investment, and Vertical Integration." American Economic Review, 112 (2): 616–49. DOI: 10.1257/aer.20201092Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- K21 Antitrust Law
- L22 Firm Organization and Market Structure
- L40 Antitrust Issues and Policies: General