MERGERS AND INVESTMENTS IN COST REDUCTION WITH PRIVATE INFORMATION REVISITED

This paper re-examines the model developed by Stenbacka (1991) which a ddresses the investment incentives of an innovating firm operating in anticipation of a merger with its rival in a Cournot duopoly setting. In contrast to Stenbacka, we find that the innovating firm need not al ways invest more should it conceal rather than reveal its R&D outcome prior to the takeover. Furthermore, we show that the ex ante incentive for the innovating firm to conceal its private information is perfect ly consistent with earlier findings in the information sharing literat ure. (C) 1997 Published by Elsevier Science B.V.