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Divesting ownership in a rival

Author

Listed:
  • Brito, Duarte
  • Cabral, Luís
  • Vasconcelos, Helder

Abstract

We examine the consumer welfare effect of a firm's partial ownership of a competitor and compare the implications of alternative forms of divestiture. We identify conditions under which turning voting shares into non-voting shares is preferable to selling the shares to the firm's current shareholders (an option frequently chosen). We also show that selling the voting shares to a large independent shareholder is preferable to selling them to small shareholders. We provide additional theoretical results and apply them to the divestiture of Portugal Telecom's holdings in PTM.

Suggested Citation

  • Brito, Duarte & Cabral, Luís & Vasconcelos, Helder, 2014. "Divesting ownership in a rival," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 9-24.
  • Handle: RePEc:eee:indorg:v:34:y:2014:i:c:p:9-24
    DOI: 10.1016/j.ijindorg.2014.02.007
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    References listed on IDEAS

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    1. Foros, Øystein & Jarle Kind, Hans & Shaffer, Greg, 2011. "Mergers and partial ownership," European Economic Review, Elsevier, vol. 55(7), pages 916-926.
    2. 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, March.
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    5. Reitman, David, 1994. "Partial Ownership Arrangements and the Potential for Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 313-322, September.
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    7. Micola, Augusto Ruperez & Bunn, Derek W., 2008. "Crossholdings, concentration and information in capacity-constrained sealed bid-offer auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 748-766, June.
    8. 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.
    9. Dietzenbacher, Erik & Smid, Bert & Volkerink, Bjorn, 2000. "Horizontal integration in the Dutch financial sector," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1223-1242, December.
    10. Alley, Wilson A, 1997. "Partial Ownership Arrangements and Collusion in the Automobile Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 191-205, June.
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    12. 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.
    13. repec:rje:randje:v:37:y:2006:1:p:81-99 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Duarte Brito & António Osório & Ricardo Ribeiro & Hélder Vasconcelos, 2015. "Unilateral Effects Screens for Partial Horizontal Acquisitions: The Generalized HHI and GUPPI," Working Papers de Economia (Economics Working Papers) 02, Católica Porto Business School, Universidade Católica Portuguesa.
    2. repec:eee:ecolet:v:166:y:2018:i:c:p:83-85 is not listed on IDEAS
    3. repec:spr:epolin:v:44:y:2017:i:3:d:10.1007_s40812-016-0053-6 is not listed on IDEAS
    4. Brito, Duarte & Cabral, Luís M B & Vasconcelos, Helder, 2016. "Competitive Effects of Partial Control in an Input Supplier," CEPR Discussion Papers 11397, C.E.P.R. Discussion Papers.
    5. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2013. "Quantifying the Coordinated Effects of Partial Horizontal Acquisitions," CEPR Discussion Papers 9536, C.E.P.R. Discussion Papers.
    6. Heim, Sven & Hüschelrath, Kai & Laitenberger, Ulrich & Spiegel, Yossi, 2017. "Minority share acquisitions and collusion: Evidence from the introduction of national leniency programs," ZEW Discussion Papers 17-037, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    7. Li, Sanxi & Ma, Hongkun & Zeng, Chenhang, 2015. "Passive cross holding as a strategic entry deterrence," Economics Letters, Elsevier, vol. 134(C), pages 37-40.

    More about this item

    Keywords

    Oligopoly; Divestiture; Control; Preferred stock;

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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