Persuasion, Pandering, and Sequential Proposal: A merger application

Résumé

In this paper, I look at the features of a model in which an informed sender can propose a project to an uninformed receiver. The receiver can accept or reject the projects implementation. If the receiver rejects, the sender can propose a different project (if available) to the receiver, which, in turn, may be accepted or rejected. Overall, only one project can be implemented. Both players share an interest in the within-project realization. Across projects, preferences are not aligned. For the case of two projects, I show existence of a robust mixed strategy equilibrium. In it, the sender panders to the unconditionally receiver-preferred project. Increasing the number of periods leads to a second class of equilibria. In this class the sender signals through waiting. The shortest “waiting equilibrium” corresponds in many ways to the mixed strategy equilibrium. Discounting and non-availability play an important role in the evaluation of the equilibria. As an application I consider a firm that needs clearance of a proposed merger by an anti-trust authority. Both players prefer higher synergies. The authority prefers high post-merger competition, the firm prefers low. Merger realization are private information of the firm.