Bank M & A Regulation Game

In over one hundred years of enterprises'merger and acquisition(M&A), M&A theories have been developed greatly. Because of particularity and complex influence, M & A of banks haven't been fully explained by common M&A theories. Therefore, there are theoretical innovations to breakthrough existing theories'research frame by studying M&A of banks from banks'behavior mechanism and their service characteristics.Modern economics put more emphasis on rational individual's value and status, and the behavior process. The game theory deepens economic analysis by stressing on individuals'behavior characteristics and rules. Therefore, the thesis applies game theory to research M&A of banks and related regulation.Firstly, the thesis introduces conception of M&A of banks, M&A types and bank industrial organization. As important theoretical foundations, motivation theories of M&A of banks and theories of regulation are explained with detail afterward.Then the research is conducted from three aspects:(i)Analyzing the benefit actuation mechanisms of horizontal M&A of banks, vertical M&A of banks and mix M&A of banks; (ii)Analyzing how the M&A price is set separately in agreement purchase and auction; (iii)Analyzing M&A's influence on social welfare and the game between banks and the government in M&A regulation.Based on scale economy effects of horizontal M&A, a complete information static gambling model is established and the analysis discovers that if the bank's scale economy index satisfies some condition, banks will carry out horizontal M&A. Moreover, it's more possible if there are more banks.Based on transaction cost effects of vertical M&A, the complete information gambling model draws the conclusion that interim products'price will not change while final financial products'price can be actually reduced after a bank which completely monopolizes interim products merges a bank which provides final financial products in Cournot oligopoly. The further discussion discovers that in the case of market foreclosure, whether banks can benefit from vertical M&A depends on both the quantities of upstream and downstream banks and the downstream industrial structure and the status of downstream bank.Based on the scope economic effects, the thesis establishes a complete information multi-dimensional gambling model in which four banks separately carry out mix M&A merger to form two banks supplying two kinds of substitutive financial service. The outcome of mix M&A surpass that of non-mix M&A, which means banks can obtain additional benefit through mix M&A. Analysis on the dynamic game of bargaining in M&A of banks finds infinite game with complete information will not end until some bank's offer is accepted by the other, while in infinite game with incomplete information, the bank to be merged will offer according to some conditions and different time-favorite buyers will accept or reject the offer. Incumbent benefit will strengthen the sell's bargaining competence. While when the buyer doesn't know about the seller's reserve value, the buyer can offer an minimum plus value in the negotiation to reach an agreement. As for many buyers in first-price-sealed bid auction, they will offer prices strictly less than their private value while the seller declares an minimum price strictly larger than his private value.M&A of banks affects social welfare. If banks are not less than some upper bound, social welfare will be increased after M&A, which means competence among banks is inefficient so the government should encourage M&A of banks. If banks are not more than some lower bound, social welfare will be decreased after M&A, which means M&A will cause scale diseconomy or high monopoly results in the decrease of consumers'surplus greatly surpassing the increase of producers' surplus so the government should restrict or forbid M&A of banks. If the quantity of banks is between the lower bound and the upper bound, social welfare after M&A of banks may be increase or decreased.The government makes M&A rules, which sends out the government's regulatory cost, and banks can judge their benefits through M&A. A signaling gambling model is established to research regulation on M&A of banks. According to the government's regulation cost and regulation rules, the game will reach three kinds of equilibrium: (â…°)Separating equilibrium, in which the government with high regulation cost makes loose M&A rules while the government with low regulation cost makes strict M&A rules. (â…±)Pooling equilibrium, in which the government makes strict M&A rules regardless its regulation cost. (â…²)Partially separating equilibrium, in which the government with high regulation cost makes strict M&A rules while the government with low regulation cost makes strict M&A rules by certain probability.