Hostile takeover and costly merger control

According to the U.S. Department of Justice’s Merger Guidelines, mergers determined to be anticompetitive are more likely than not to be challenged. Within an adversarial system, the corresponding process of merger control exhibits two kinds of inefficiencies: First, both the antitrust authority and the buyer spend considerable amounts of resources during litigation. Second, the anticompetitive merger is only prevented with a probability less than one. We can show that these inefficiencies may be smaller under a hostile than under a friendly takeover although the top management of the target firm is introduced as third player, spending additional resources during litigation.