www.elsevier.com/locate/jet Strategic merger waves: A theory of musical chairs

This paper proposes an explanation ofmergerwaves based on the interaction between competitive pressure and irreversibility of mergers in an uncertain environment. A set of acquirers compete over time for scarce targets. At each point in time, an acquirer can either postpone a takeover attempt or raid immediately. By postponing the takeover attempt, an acquirermay gain frommore favorable futuremarket conditions, but runs the risk of being preempted by rivals. First, a complete information model is considered and it is shown that the above tradeoff leads to a continuum of subgame perfect equilibria in monotone strategies that are strictly Pareto ranked. All these equilibria share the feature that all acquirers rush simultaneously in merger waves. The model is then extended to a dynamic global game by introducing slightly noisy private information about merger profitability. This game is shown to have a unique Markov perfect Bayesian equilibrium in monotone strategies and the timing of themerger wave can thus be predicted. Last, the comparative dynamics predictions of the model are related to stylized facts