Interindustry Takeover, Economies of Scope, and Takeover Premia

The existence of takeover premia is well established in the finance literature. This research motivates the existence of premia by utilising the concept of economies of scope which are empirically proxied by the 'closeness' of industries, and subsequently provides a theoretical framework for the analysis. Potential takeover premia are shown to exist under standard conditions of Cournot competition for firms which operate in two related industries and for whom the products are considered to be strategic substitutes.