Mergers and partial ownership
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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