Bargaining Power and Industry Dependence in Mergers

In contrast to the widely held belief that targets capture the lion's share of merger gains, I document considerable variation in the division of dollar gains in mergers and find that the gains to targets are only modestly more than the gains to acquirers. I present empirical evidence in support of a new hypothesis that argues that a firm's relative scarcity (proxied by its market power) and product market dependence (proxied by customer-supplier relations) help to explain the firm's share of the total merger gains. These results provide some of the first large-scale evidence on bargaining outcomes in mergers