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Foreclosure and Tunneling with Partial Vertical Ownership

Author

Listed:
  • Matthias Hunold

    (University of Siegen)

  • Vasilisa Petrishcheva

    (University of Potsdam)

Abstract

We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target (tunneling). Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.

Suggested Citation

  • Matthias Hunold & Vasilisa Petrishcheva, 2022. "Foreclosure and Tunneling with Partial Vertical Ownership," CEPA Discussion Papers 57, Center for Economic Policy Analysis.
    • Handle: RePEc:pot:cepadp:57
    DOI: 10.25932/publishup-56560
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    References listed on IDEAS

    as
    1. Matthias Hunold & Konrad Stahl, 2016. "Passive vertical integration and strategic delegation," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 891-913, November.
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    9. Fried, Jesse M. & Spamann, Holger, 2020. "Cheap-stock tunneling around preemptive rights," Journal of Financial Economics, Elsevier, vol. 137(2), pages 353-370.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Backward ownership; Entry deterrence; Foreclosure; Minority shareholdings; Partial ownership; Uniform pricing; Vertical integration;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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