Monday, March 19, 2012
Posted by D. Daniel Sokol
Heiko Karle ECARES, ULB, Tobias J. Klein, Tilburg University - Department of Econometrics & Operations Research and Konrad O. Stahl, discuss University of Mannheim - Department of Economics Ownership and control in a competitive industry.
ABSTRACT: We study a differentiated product market in which an investor initially owns a controlling stake in one of two competing firms and may acquire a non-controlling or a controlling stake in a competitor, either directly using her own assets, or indirectly via the controlled firm. While industry profits are maximized within a symmetric two product monopoly, the investor attains this only in exceptional cases. Instead, she sometimes acquires a noncontrolling stake. Or she invests asymmetrically rather than pursuing a full takeover if she acquires a controlling one. Generally, she invests indirectly if she only wants to affect the product market outcome, and directly if acquiring shares is profitable per se.