Wednesday, January 9, 2013

The Anti-Competitive Effects of Minority Stake Acquisitions

Posted by D. Daniel Sokol

Amrita Nain, University of Iowa - Henry B. Tippie College of Business and Yan Wang, McGill University - Faculty of Management discuss The Anti-Competitive Effects of Minority Stake Acquisitions.

ABSTRACT: We show that partial equity ownership of rival firms is driven by competitive considerations and has significant anticompetitive effects. Firms in competitive industries are more likely to acquire a minority stake in a rival firm’s equity. Moreover, minority sake acquisitions are followed by higher output prices and higher price-cost margins, particularly in industries with high barriers to entry. The increase in prices and profit margins is larger when the acquirer and target have a larger market share and when the percentage of shares acquired is higher. Our results suggest that passive investments in rival firms deserve antitrust scrutiny.

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