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Networks Concepts in Mergers & Acquisitions Negotiations

Nash equilibrium is applicable in many contexts of life, but I believe the most high-stakes situations are the most interesting. High-stakes can be defined in many ways, but the one I would like to focus on is when there is a lot of money on the line. This occurs most of all in the law. Much of law is two parties trying to come to some compromise, in various ways. Specifically, mergers and acquisitions, although one of the less exciting sides of law, involves a lot of negotiation, which is where the game theory comes in.

The obvious constraint to this idea is that in a merger and acquisition negotiation allows both sides to communicate, thus removing the element of the unknown from the scenario. You might think that it is in the benefit of each “player” to not reveal their hand, so that they get a better deal from the agreement (perhaps tying back to our discussion of auctions). However, as this article explains, the best merger and acquisition negotiations are those in which there is open communication and both parties are clear about what they want.

The author describes a different sort of game theory set-up than we have discussed in class. Instead of two options for each player, he lists the priority each client has for each element based on what they say in discussions. Using this, he is able to clearly see what each client is willing to compromise on and what are top priorities for them. Despite the author’s claims, I personally see this more as an inverse buyer and seller market. In particular, the way you want to connect low priority items of one client to the high priority items of another to find a match. If there is too much similarity in the clients’ priority lists, a matching will be impossible, as they both want the same things (the way a buyer and seller having different values for the same item would hinder the sale). But if they both different values for each criterion, a perfect match could be made (like a buyer and seller having similar values for an item. But whether it’s Nash Equilibria, auctions, or matching markets, the concepts of this course are certainly applicable to the lucrative world of mergers and acquisitions.




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October 2019