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Real market concentration through partial acquisitions

Listed author(s):
  • Charléty-Lepers, Patricia


    (ESSEC Business school)

  • Fagart, Marie-Cécile


    (University of Rouen and CREST-LEI (Center for Research in Economics and Statistics-Laboratory of industrial economics))

  • Souam, Saïd


    (University of Tours and CREST-LEI (Center for Research in Economics and Statistics-Laboratory of industrial economics))

We study horizontal partial acquisitions in an oligopolistic industry in the absence of synergies. Contrary to existing results, we find that a dominant shareholder may choose to acquire shares in a competitor although the aggregate profit of the group of firms under his control, and even the greater group of firms in which he has a stake, is reduced. This is due to a “favorite” effect: after the acquisition, the dominant shareholder will favor the firm in which he eventually holds the relatively higher share to the detriment of shareholders of the other firms. For this reason, a block of shares can be bought at a discount when the value of the firm of the initiator decreases post acquisition. Moreover, we show that the existence of initial silent toeholds in rivals enhances the incentive for a dominant shareholder to buy shares in other firms in the industry, whereas controlling ones may discourage them.

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Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 04004.

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Length: 32 pages
Date of creation: May 2004
Handle: RePEc:ebg:essewp:dr-04004
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ESSEC Research Center, BP 105, 95021 Cergy, France

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