Conditional versus unconditional bidding in takeovers

Conditional and unconditional bidding in takeovers: experimental evidence

“…They showed that the raider's opportunity to place multiple unconditional bids intensifies the shareholders' incentives to free ride, and significantly reduces the raider's profit in comparison to the predictions of the static theories. Similar results were obtained by Prokop (2003) in the dynamic model of conditional tender offers: even a company owned by a relatively small number of shareholders may not be profitably acquired by the raider.…”

“…Based on the above values, we may conjecture that the possibility for the raider to make many tender offers generates more free riding among the shareholders than when only a single offer is expected. Such prediction was made theoretically in a dynamic model of conditional bidding by Prokop (2003).…”

“…Table 2 Symmetric equilibrium in a static model of unconditional bidding for δ = 0 Source: based on Harrington and Prokop (1993, p. 867). Prokop (2003) considered an equivalent concept of equilibrium to solve the dynamic model of conditional bidding. The numerical results of the theoretical model for N=10 are presented in Table 3.…”

“…The numerical results of the theoretical model for N=10 are presented in Table 3. Table 3 Conditional bidding: symmetric Markov perfect equilibrium The above theoretical predictions based on the dynamic framework developed by Harrington and Prokop (1993) and Prokop (2003) were used in our laboratory experiments.…”

“…In related papers, Kale and Noe (1997) and Hamaguchi et al (2003) provide experimental testing of the free-rider problem, but they focus on the static approach to the hostile takeovers. In the current paper, we construct our experiments to reflect the dynamics of unconditional bidding suggested by Harrington and Prokop (1993) and the dynamics of conditional bidding analyzed by Prokop (2003).…”