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Mergers and Partial Ownership

Author

Listed:
  • Foros, Øystein

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Kind, Hans Jarle

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Shaffer, Greg

    (University of Rochester and University of East Anglia)

Abstract

In this paper we compare the profitability of a merger between two firms (one firm fully acquires another) and the profitability of a partial ownership arrangement between the same two firms in which the acquiring firm obtains corporate control over the pricing decisions of the acquired firm. 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. 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.

Suggested Citation

  • Foros, Øystein & Kind, Hans Jarle & Shaffer, Greg, 2010. "Mergers and Partial Ownership," Discussion Papers 2010/15, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2010_015
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    File URL: http://hdl.handle.net/11250/164002
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    Keywords

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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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