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PSYCHOLOGICAL PRICING IN MERGERS AND ACQUISITIONS USING REAL OPTIONS SIGNALLING GAMES

PSYCHOLOGICAL PRICING IN MERGERS AND ACQUISITIONS USING REAL OPTIONS SIGNALLING GAMES Merger and acquisition (M and A) pricing can be quite complex as traditional finance models that are used for such pricing does not include psychological pricing biases that exist in such transactions. Though, the use of game theory and option pricing has shown promise in analyzing M and A transactions. In this paper, we develop a two-person M and A model incorporating real options signaling games, which uses game theory and option pricing to find a Nash equilibrium for such transactions. The two-person M and A model is an incomplete information game and signaling in the game assists the type of the opponent, which helps a player improve their play-off in the game. JEL codes: G34, L11, P42 Keywords: mergers and acquisitions, incomplete games, option pricing http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Self-Governance and Management Economics Addleton Academic Publishers

PSYCHOLOGICAL PRICING IN MERGERS AND ACQUISITIONS USING REAL OPTIONS SIGNALLING GAMES

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
2329-4175
eISSN
2377-0996
Publisher site
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Abstract

Merger and acquisition (M and A) pricing can be quite complex as traditional finance models that are used for such pricing does not include psychological pricing biases that exist in such transactions. Though, the use of game theory and option pricing has shown promise in analyzing M and A transactions. In this paper, we develop a two-person M and A model incorporating real options signaling games, which uses game theory and option pricing to find a Nash equilibrium for such transactions. The two-person M and A model is an incomplete information game and signaling in the game assists the type of the opponent, which helps a player improve their play-off in the game. JEL codes: G34, L11, P42 Keywords: mergers and acquisitions, incomplete games, option pricing

Journal

Journal of Self-Governance and Management Economics – Addleton Academic Publishers

Published: Jan 1, 2013

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