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Foreclosure and Profit Shifting with Partial Vertical Ownership

Author

Listed:
  • Matthias Hunold
  • Vasilisa Petrishcheva

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. 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, 2024. "Foreclosure and Profit Shifting with Partial Vertical Ownership," Berlin School of Economics Discussion Papers 0041, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0041
    DOI: 10.48462/opus4-5477
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    References listed on IDEAS

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    1. Cheung, Yan-Leung & Rau, P. Raghavendra & Stouraitis, Aris, 2006. "Tunneling, propping, and expropriation: evidence from connected party transactions in Hong Kong," Journal of Financial Economics, Elsevier, vol. 82(2), pages 343-386, November.
    2. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
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    Keywords

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    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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