The Anticompetitive Effects of Minority Stake Acquisitions

Abstract

We show that partial cross ownerships between rival firms are driven by competitive considerations and have significant anti-competitive effects. Firms in more competitive industries are more likely to acquire a minority stake in a rival firm’s equity. Moreover, significant increases in partial cross ownership within an industry result in higher output prices and higher price-cost margins. The increase in prices and profits is larger in ex-ante more competitive industries, suggesting that rivals may acquire minority stakes in each other with the express purpose of reducing competition. Consistent with theory, the price increase is greater when firms participating in the partial cross ownership are larger or have a bigger sales market share. Our results suggest that passive investments in rival firms deserve some antitrust scrutiny.