Abstract
The growth of private-equity investment strategies in which firms often hold partial ownership interests in competing firms has led competition agencies to take an increased interest in assessing the competitive effects of partial horizontal acquisitions. We propose a methodology to evaluate the coordinated effects of such acquisitions on differentiated products industries. The acquisitions may be direct and indirect, and may or not correspond to control. The methodology, that nests full mergers, evaluates the impact on the range of discount factors for which coordination can be sustained. We provide an empirical application to several acquisitions in the wet shaving industry.
Highlights
Full acquisitions complete and permanently eliminate competition among the ...rms involved in the transaction
The proposed empirical structural methodology can cope with acquisition settings involving all types of owners and ownership rights: owners that can be internal to the industry and external to the industry; and ownership rights that can involve ...nancial interests and corporate control, can be direct and indirect, can be partial or full
We provide an empirical application of the methodology to a variety of actual and hypothetical acquisitions in the wet shaving industry that give rise to cross- and common-ownership structures
Summary
Full acquisitions complete and permanently eliminate competition among the ...rms involved in the transaction. 2004) in order to encompass real-world industry features, and are assumed to follow grim-trigger strategies, the most basic enforcement mechanism to sustain a coordinated arrangement (Friedman, 1971) This structural setting is used to simulate the counterfactual stream of operating pro...ts of ...rms under the di¤erent regimes of the tacit coordination model (Davis, 2006; Davis and Huse, 2010), which, in turn, are used to evaluate quantitatively the likelihood of coordinated conduct pre- and post-acquisition. The proposed empirical structural methodology can cope with acquisition settings involving all types of owners and ownership rights: owners that can be internal to the industry (rival ...rms) and external to the industry; and ownership rights that can involve ...nancial interests and corporate control, can be direct and indirect, can be partial or full.3 This structural approach to assess the coordinated e¤ects of partial horizontal acquisitions has not been, to our knowledge, examined in any other academic study. Structural methodology used to evaluate the coordinated e¤ects of partial horizontal acquisitions, Section 4 provides the above mentioned empirical application, and Section 5 concludes
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