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Pricing Strategy and Financial Policy

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Author Info
Dasgupta, Sudipto
Titman, Sheridan

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Abstract

Recent empirical evidence indicates that capital structure changes affect pricing strategies. In most cases, prices increase following the implementation of a leveraged buyout of a major firm in an industry, with the more leveraged firm in the industry charging higher prices on average. Notable exceptions exist, however, when the leverage increasing firm's rival is relatively unlevered. The first observation is consistent with a model where firms compete for market share on the basis of price. The second observation can be explained within the context of a Stackelberg model where the relatively unlevered rival acts as the Stackelberg price leader. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 11 (1998)
Issue (Month): 4 ()
Pages: 705-37
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Handle: RePEc:oup:rfinst:v:11:y:1998:i:4:p:705-37

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chevalier, Judith A, 1995. " Do LBO Supermarkets Charge More? An Empirical Analysis of the Effects of LBOs on Supermarket Pricing," Journal of Finance, American Finance Association, vol. 50(4), pages 1095-1112, September. [Downloadable!] (restricted)
  2. Chong-en Bai & Shan Li, 1994. "Capital Structure and Product Market Strategy," Boston College Working Papers in Economics 279., Boston College Department of Economics.
  3. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254. [Downloadable!] (restricted)
  4. Titman, Sheridan, 1984. "The effect of capital structure on a firm's liquidation decision," Journal of Financial Economics, Elsevier, vol. 13(1), pages 137-151, March. [Downloadable!] (restricted)
  5. Opler, Tim C & Titman, Sheridan, 1994. " Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, vol. 49(3), pages 1015-40, July. [Downloadable!] (restricted)
  6. Froot, Kenneth A & Klemperer, Paul D, 1989. "Exchange Rate Pass-Through When Market Share Matters," American Economic Review, American Economic Association, vol. 79(4), pages 637-54, September. [Downloadable!] (restricted)
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  7. Showalter, Dean M, 1995. "Oligopoly and Financial Structure: Comment," American Economic Review, American Economic Association, vol. 85(3), pages 647-53, June. [Downloadable!] (restricted)
  8. James A. Brander & Tracy R. Lewis, 1988. "Bankruptcy Costs and the Theory of Oligopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 21(2), pages 221-43, May. [Downloadable!] (restricted)
  9. Judith A. Chevalier & David S. Scharfstein, 1994. "Capital Market Imperfections and Countercyclical Markups: Theory and Evidence," NBER Working Papers 4614, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May. [Downloadable!] (restricted)
  11. Glazer Jacob, 1994. "The Strategic Effects of Long-Term Debt in Imperfect Competition," Journal of Economic Theory, Elsevier, vol. 62(2), pages 428-443, April. [Downloadable!] (restricted)
  12. Maksimovic, Vojislav, 1990. " Product Market Imperfections and Loan Commitments," Journal of Finance, American Finance Association, vol. 45(5), pages 1641-53, December. [Downloadable!] (restricted)
  13. Hirshleifer, David & Suh, Yoon, 1992. "Risk, managerial effort, and project choice," Journal of Financial Intermediation, Elsevier, vol. 2(3), pages 308-345, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Krishnendu Dastidar, 2003. "Oligopoly and financial structure revisited," Economics Bulletin, Economics Bulletin, vol. 12(3), pages 1-12. [Downloadable!]
  2. Alexandra Lai & Raphael Solomon, 2006. "Ownership Concentration and Competition in Banking Markets," Working Papers 06-7, Bank of Canada. [Downloadable!]
  3. Hege, Ulrich & Hennessy, Christopher, 2007. "Acquisition Values and Optimal Financial (In)Flexibility," Les Cahiers de Recherche 878, Groupe HEC. [Downloadable!]
  4. Javier Campos, 2000. "Responsabilidad limitada, estructura financiera y comportamiento de las empresas españolas," Investigaciones Economicas, Fundación SEPI, vol. 24(3), pages 585-610, September. [Downloadable!]
  5. Erkki Koskela & Rune Stenbacka, 2000. "Bank mergers and the fragility of loan markets," Finnish Economic Papers, Finnish Society for Economic Research, vol. 13(1), pages 3-18, Spring. [Downloadable!]
  6. Helder Valente, 2003. "Financial Strategies in Mergers and Acquisitions (M&A): The Case of Regulated Firms," CETE Discussion Papers 0307, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  7. Gregory Noronha & Vijay Singal, 2004. "Financial health and airline safety," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 1-16. [Downloadable!]
  8. Jianjun Miao, 2003. "Optimal Capital Structure and Industry Dynamics," Industrial Organization 0310001, EconWPA. [Downloadable!]
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