Disclosure Services and Endogenous Segmentation in Takeover Markets

We present a competitive model of takeovers among heterogeneous firms. Each firm owns a tradeable "project" and non-tradeable "skill". The complementarity between them generates takeovers. We construct an equilibrium with two segmented markets. In one market, firms pay a fee to an intermediary to fully disclose their project quality. In the other market, firms reveal at no cost that their project quality is above a minimum standard. The latter market matches projects to skill randomly. Yet, it significantly improves welfare by raising the elasticity of the demand for the full disclosure service. Regulations necessary to support this equilibrium are discussed.