In view of the uncertainty over the ability of merging firms to achieve efficiency gains, we model the post-merger situation as a Cournot oligopoly wherein the outsiders face uncertainty about the merged entity’s final cost. At the Bayesian equilibrium, a bilateral merger is profitable...

This study explores the formation of buyer-seller relationships in markets with observable quality. We develop a model that explains why relationships form in equilibrium within such markets. A key feature of our model is that as individuals gain experience in the marketplace, they resolve...

In this paper, we provided a unifying analysis of latent variable models in finance through the concept of stochastic discount factor (SDF).