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A Theory of Preemptive Takeover Bidding

Michael J. Fishman
The RAND Journal of Economics
Vol. 19, No. 1 (Spring, 1988), pp. 88-101
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/2555399
Page Count: 14
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A Theory of Preemptive Takeover Bidding
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Abstract

This article develops a model of the takeover bidding process. The model can be described as a form of auction in which a bidder can acquire costly information after the bidding has begun. Implications concerning the interrelationships between bidders' and targets' profits, bidders' initial offers, single and multiple bidder contests, and the effects of takeover legislation are developed. Additionally, the model provides a rationale for bidders to make high premium ("preemptive") initial bids, rather than making low initial bids and raising them if there is competition.

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