The Anti-Competitive Effects of Minority Stake Acquisitions

Authors: Nain, Amrita; Wang, Yan

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.

Read full paper: November 2012