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Mergers and partial ownership

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Author Info

  • Foros, Øystein
  • Jarle Kind, Hans
  • Shaffer, Greg

Abstract

We compare the profitability of a merger between two firms in which one firm fully acquires another and the profitability of a partial ownership arrangement in which the acquiring firm, although owning less than 100% of the acquired firm, is nevertheless able to obtain corporate control over all pricing decisions. We find that joint profit can be higher in the latter case because it may result in a greater dampening of competition with respect to an outside competitor when the partial ownership arrangement is publicly observable. We also derive comparative statics on the prices of the acquiring firm, the acquired firm, and the outside firm and use them to explain puzzling features of the pay-TV markets in Norway and Sweden.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 55 (2011)
Issue (Month): 7 ()
Pages: 916-926

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Handle: RePEc:eee:eecrev:v:55:y:2011:i:7:p:916-926

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Mergers; Corporate control; Financial control; Media economics;

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References

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  1. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  2. Malueg, D.A., 1990. "Collusive Behavior And Partial Ownership Of Rivals," Papers 90-9, U.S. Department of Justice - Antitrust Division.
  3. Bresnahan, Timothy F. & Salop, Steven C., 1986. "Quantifying the competitive effects of production joint ventures," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 155-175, June.
  4. Reitman, David, 1994. "Partial Ownership Arrangements and the Potential for Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 313-22, September.
  5. Flath, David, 1991. "When is it rational for firms to acquire silent interests in rivals?," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 573-583, December.
  6. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  7. Peitz, Martin & Valletti, Tommaso, 2004. "Content and Advertising in the Media: Pay-TV versus Free-To-Air," CEPR Discussion Papers 4771, C.E.P.R. Discussion Papers.
  8. Reynolds, Robert J. & Snapp, Bruce R., 1986. "The competitive effects of partial equity interests and joint ventures," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 141-153, June.
  9. Flath, David, 1989. "Vertical integration by means of shareholding interlocks," International Journal of Industrial Organization, Elsevier, vol. 7(3), pages 369-380.
  10. David Gilo & Yossi Moshe & Yossi Spiegel, 2006. "Partial cross ownership and tacit collusion," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 81-99, 03.
  11. Showalter, Dean M, 1995. "Oligopoly and Financial Structure: Comment," American Economic Review, American Economic Association, vol. 85(3), pages 647-53, June.
  12. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Programming and advertising competition in the broadcasting industry," CORE Discussion Papers RP -1873, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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Cited by:
  1. Karle, H. & Klein, T.J. & Stahl, K.O., 2011. "Ownership and Control in a Competitive Industry," Discussion Paper 2011-026, Tilburg University, Center for Economic Research.
  2. Fiocco, Raffaele, 2014. "The strategic value of partial vertical integration," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 455, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Jovanovic, Dragan & Wey, Christian, 2013. "Passive partial ownership, sneaky takeover, and merger control," DICE Discussion Papers 102, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Bivand, Roger, 2011. "Geocomputation and open source software: components and software stacks," Discussion Paper Series in Economics 23/2011, Department of Economics, Norwegian School of Economics.

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