Monday, October 4, 2021

Market Power and Systematic Risk

Market Power and Systematic Risk

 

 

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Christoph Wuersig

Leibniz Universität Hannover - Faculty of Economics and Management

 

Abstract

We investigate the impact of product market competition on firms' systematic risk. Using a measure of total product market similarity, we document a strong negative link between market power and market betas. There is a more than threefold increase in the effect during the most recent low-competition period. Announcements of anti-competitive mergers lead to a significant reduction in market betas, underlining the causality of the market power--systematic risk relationship. Firms that face less competition appear to be partly insulated from systematic discount-rate shocks. Lower equity costs therefore mean that market power is in part self-reinforcing.

https://lawprofessors.typepad.com/antitrustprof_blog/2021/10/market-power-and-systematic-risk.html

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