Mergers and Partial Ownership
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.
|Date of creation:||11 Dec 2010|
|Date of revision:|
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