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ABSTRACT. Merger and acquisition (M&A) pricing can be quite complex as traditional finance models that are used for such pricing does not include psychological pricing biases that exist in such transactions. Though, the use of game theory and option pricing has shown promise in analyzing M&A transactions. In this paper, we develop a two-person M&A model incorporating real options signaling games, which uses game theory and option pricing to find a Nash equilibrium for such transactions. The two-person M&A model is an incomplete information game and signaling in the game assists the type of the opponent, which helps a player improve their play-off in the game. pp. 17–27
JEL codes: G34, L11, P42

Keywords: mergers & acquisitions, incomplete games, option pricing

How to cite: Agarwal, Nipun, and Panlop Zeephongsekul (2013), “Psychological Pricing in Mergers & Acquisitions Using Real Options Signalling Games,” Journal of Self-Governance and Management Economics 1(1): 17–27.

NIPUN AGARWAL
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School of Mathematics & Geospatial Sciences
RMIT University, Melbourne, Australia
PANLOP ZEEPHONGSEKUL
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School of Mathematics & Geospatial Sciences
RMIT University, Melbourne, Australia

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