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Buying to Sell: Private Equity Buyouts and Industrial Restructuring

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  • Norbäck, Pehr-Johan
  • Persson, Lars
  • Tåg, Joacim Ingemar

Abstract

We investigate how temporary ownership by private equity firms affects industry structure, competition and welfare. Temporary ownership leads to strong investment incentives because equilibrium resale prices are determined partly by buyers' incentives to block rivals from obtaining assets. These strong incentives benefit consumers, but harm rivals in the industry. Evaluating optimal antitrust policy, we point out that an active private equity market can aid antitrust authorities by triggering welfare enhancing mergers and by preventing concentration in the industry. By spreading costs of specializing in restructuring over multiple markets, private equity firms have stronger incentives than incumbents to invest in acquiring specialized restructuring skills.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8992.

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Date of creation: May 2012
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Handle: RePEc:cpr:ceprdp:8992
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Keywords: antitrust; competition policy; leveraged buyouts; mergers and acquisitions; private equity; temporary ownership;

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Find related papers by JEL classification:
  • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
  • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
  • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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Cited by:

  1. Tåg, Joacim, 2010. "The Real Effects of Private Equity Buyouts," Working Paper Series 851, Research Institute of Industrial Economics.
  2. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim Ingemar, 2013. "Acquisitions, Entry, and Innovation in Network Industries," CEPR Discussion Papers 9585, C.E.P.R. Discussion Papers.

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