53 research outputs found

    Essay 1: \u27An Examination of the Efficiency, Foreclosure, and Collusion Rationales for Vertical Takeovers\u27 Essay 2: \u27Determinants of Firm Vertical Boundaries and Implications for Internal Capital Markets\u27

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    Essay 1: An Examination of the Efficiency, Foreclosure, and Collusion Rationales for Vertical Takeovers We investigate the efficiency, foreclosure, and collusion rationales for vertical integration using a large sample of vertical takeovers. The efficiency rationale posits that vertical integration prevents future holdup between non-integrated suppliers and customers. In contrast, the foreclosure and collusion rationales suggest that vertical integration harms competition. To distinguish between these hypotheses, we examine the wealth effects of the merging firms, acquirer rivals, target rivals, and corporate customers on announcement of vertical takeovers. Our univariate and cross-sectional results suggest that firms alter their vertical boundaries in a manner that is consistent with the efficiency rationale. Our tests do not find evidence supportive of the anti-competitive rationales for vertical integration. Essay 2: Determinants of Firm Vertical Boundaries and Implications for Internal Capital Markets In this paper, we investigate the determinants of vertical relatedness between business segments of multi-segment firms and how vertical relatedness affects the internal allocation of capital. Consistent with theory, we observe a higher degree of vertical relatedness between segments in environments likely to involve contracting problems. Further, there is a greater tendency for investments to flow towards segments with better investment opportunities as the degree of vertical relatedness between business segments in the firm increases. This indicates that internal capital markets function better in the presence of significant vertical relatedness between segments. This finding supports the Stein (1997) model, which suggests that the headquarters is able to do a better job of “winner-picking” when firms operate in related lines of businesses

    Vertical Mergers and Entrepreneurial Exit

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    The idea that tech companies should be permitted to acquire nascent start-ups is under attack from antitrust populists. Yet, this debate on vertical mergers has overlooked important empirical contributions regarding innovation-related mergers in the strategy literature. This Article explores the extant empirical strategy literature, which generally identifies a procompetitive basis that supports vertical mergers as efficiency enhancing. This literature solidifies the current general vertical merger presumption that favors a procompetitive vertical merger policy for purposes of government merger enforcement. However, the procompetitive benefit for a presumption of merger approval for most vertical mergers does not end with the synthesis of an under-explored literature. Rather, the broader implications of vertical mergers and presumptions of legality have another overlooked implicationa change of policy may dampen entrepreneurial investment and innovation. Entrepreneurial exit is critical to a well-functioning entrepreneurial ecosystem, as the possibility of entrepreneurial exit via vertical merger is now the most usual form of liquidity event/exit for founders and venture capitalists. Vertical merger policy that would unduly restrict large tech firms from undertaking acquisitions in industries as diverse as finance, pharmaceuticals, medical devices, technology hardware, and internet platforms would hurt incentives for innovation in the economy by chilling business formation in start-ups. Increased difficulty in the exit for founders and venture capitalists makes investment in such ventures less likely, since the purpose of such investment is to reap the rewards of scaling a venture to exit. Thus, a general inference that makes vertical acquisitions, particularly in tech, more difficult to undertake leads to direct contravention of antitrust’s role in promoting competition and innovation. This Article explores how entrepreneurial exit for founders and venture capitalists is best served by promoting a robust vertical merger policy, though one that intervenes in cases of specific anticompetitive harm

    Essays On Horizontal Divestitures And Product Market Relationships

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    This dissertation is the first to study the product effect of horizontal divestitures on upstream and downstream firms. This first essay examines product market impact of a sample of horizontal asset sales from 1988 to 2005 on corporate customers, suppliers, and industry rivals. I create a sample of firms that classifies corporate customers, suppliers, and industry competitors of firms proposing horizontal asset sales, and employ this data set to investigate the wealth effects at announcement. This study also considers post-divestiture changes in abnormal operating performance for divesting firms, customers, and suppliers. I document evidence that divestiture related wealth effects for divesting parent firms are associated with efficiencies resulting from the reduction of firm bureaucracy I provide evidence that managers must balance post-divestiture productivity gains with potential declines in profitability due to reduced bargaining power with suppliers. Unlike prior evidence from vertical divestitures (Jain, Kini, and Shenoy, 2011), this study documents that parent firm divestiture gains are not shared by their industry rivals, corporate customers and suppliers. I also find that these events have negative implications for the valuation of industry rivals, corporate customers, and certain subsamples of suppliers. In addition, the evidence suggests that factors such as customer (supplier) switching costs and industry structure tend to play an important role in the wealth effects of customers (suppliers) at announcement of upstream (downstream) divestitures. The second essay of my dissertation investigates this topic by exploring quarterly horizontal divestiture activity at the industry level by aggregating firm level divestitures by industry using a sample of horizontal divestitures from 1979-2010. This essay documents the opportunistic behavior of certain product market participants, such as customers and suppliers, in the context of horizontal divestitures. I perform an extensive empirical cross-industry investigation of the product market effects of horizontal divestitures on supplier (customer) industries via their impact on profitability, value, and prices (profitability, value, and input costs). The second essay presents evidence that opportunistic customers exploit supplier dependence in the years following significant upstream divestiture activity. As a result, these customers enjoy significant increases in profitability, value, and a considerable decline in input costs relative to customers of non-dependent suppliers. Additionally, I also find that suppliers with pivotal buyers suffer unfavorable changes in profitability and value in the years subsequent to downstream divestiture activity relative to suppliers with non-pivotal buyers. This evidence suggests that pivotal buyers capitalize on significant downstream divestiture activity to reverse their pivotal position and eliminate cross-subsidization by suppliers and non-pivotal buyers within their industry

    Financialization of the food value chain, common ownership and competition law

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    We explore the possibility that common ownership may constitute a competition concern, raising issues of unilateral effects, horizontal collusion, vertical exclusion and vertical exploitation. We proceed to empirical investigation in the context of Global Food Value Chains using the tool of advanced social network analysis, which captures the raising concern that many institutional investors are passive investors in the diverse companies that are active at various segments of the chain. In view of the possible negative welfare effects of common ownership on competition and its prevalence in the food sector, it is contended that competition authorities need to develop adequate legal tools to deal with this issue and rely on economics but also other sources of wisdom (e.g. advanced social network analysis) that may enable a better mapping of the complexity of competitive interactions in this sector and be more adequate in the context of a complex economy

    Analyzing Vertical Mergers: Accounting for the Unilateral Effects Tradeoff and Thinking Holistically About Efficiencies

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    With the adoption of the 2020 Vertical Merger Guidelines, the U.S. antitrust agencies have updated their guidance on vertical mergers for the Twenty-First Century. Although economists have long recognized the procompetitive benefits most vertical mergers generate, the law has not always followed suit, and has sometimes condemned vertical mergers for making the merged firm more efficient. In this article, we attempt to catalogue the extensive list of efficiencies that vertical mergers can generate, trace the often halting efforts to incorporate these insights into the law, and propose a framework that courts and agencies can use to assess the likely competitive effects of vertical transactions. We draw heavily upon leading cases, particularly Baker Hughes and AT&T, with two refinements. First, consistent with the final Guidelines (but not the earlier draft) and the economic literature noting a symmetry between unilateral anticompetitive effects (raising rivals’ costs) and procompetitive effects (the elimination of double marginalization), which we call the “unilateral effects tradeoff,” we argue a plaintiff alleging a raising rivals cost (RRC) theory of harm must also address EDM as part of its prima facie case. Second, if the plaintiff carries its prima facie burden, then the defendant should be able to argue, and courts and Agencies should seriously consider, the full range of procompetitive efficiencies, which we call a “holistic efficiency analysis.

    Airline alliances, antitrust immunity and market foreclosure

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    This paper examines the issue of market foreclosure by airline partnerships with antitrust immunity. Overlapping the data on frequency of service and passenger volumes on nonstop routes on the transatlantic airline market with the information on dynamics of airline partnerships, we find evidence consistent with the airlines operating under antitrust immunity refusing to accept connecting passengers from the carriers outside of the partnership at respective hub airports. When an airline partnership is granted antitrust immunity, airlines outside this partnership end up reducing their traffic to the partner airlines’ hub airports by 2.6-8.5 percent (depending on the specification and estimation technique involved). Our results suggest ambiguous welfare effects of antitrust immunity on some markets, where previous studies indicated airline consolidation should benefit consumers

    Imperfect information in firm growth strategy:Three essays on M&A and FDI activities

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    This dissertation uses three empirical essays to address a series of research questions regarding imperfect information in firm growth strategy, focusing on firms’ merger and acquisition (M&A) and foreign direct investment (FDI) activities. Chapter 2 builds upon the acquisition motive literature and explores the acquirer’s strategic use of M&A conference calls to influence rivals’ information processing. Chapter 3 focuses on the information benefits of emulating peers’ previous foreign location choices and examines the role of variable risk references in the imitation process. Chapter 4 highlights internal governance challenges due to managerial bounded rationality and bounded reliability and investigates how the board of directors may help overcome information barriers and contribute to the value creation of knowledge-based intangible assets in cross-border M&As

    Essays on the effects of mergers on competition

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    Mergers enable firms to internalize pricing externalities among competitors, hence raising market power and reducing social welfare. Mergers, on the other hand, can create merger-specific efficiencies and hence promote welfare. This thesis investigates the competitive effects of both horizontal and vertical mergers, motivated by this trade-off. It consists of two chapters. Chapter 2 sheds light on the competitive effects of killer acquisitions by extending the theoretical model of Cunningham et al. (2021). It examines how an acquiring firm\u27s post-acquisition divestiture incentive is affected by the nature of competition, how the divestiture strategy impacts the likelihood of killer acquisitions, and what policy remedies are effective for merger control. The result shows that when firms compete in quantities and product similarity is sufficiently high, the acquiring firm strategically chooses to produce the newly acquired product under a separate subsidiary. With the extra divestiture option, the killing zone becomes smaller and the parameter region for genuine acquisition is larger. Unless the development cost is sufficiently high, killer acquisitions unambiguously reduce consumer welfare and social welfare. To mitigate the anti-competitiveness of killer acquisitions, Chapter 2 proposes two divestiture-related policy remedies: Commit-to-divest remedy and Committo-develop-and-divest remedy. It shows that the two remedies are effective in merger control when the development cost is not too high. In particular, the Commit-to-develop-and-divest remedy totally prohibits the emergence of killer acquisitions and increases consumer welfare. Chapter 3 discusses the competitive effects of vertical mergers. It studies whether a partial vertical merger results in market foreclosure, and how the integrating firm\u27 foreclosure strategy affects consumer welfare, in a successive duopoly setting. The result suggests that the magnitude of partial ownership shares has a significant impact on the integrated firm\u27s incentive in foreclosing competitors. The integrated upstream firm, in particular, chooses input foreclosure if and only if the ownership stake is sufficiently high, and the integrated downstream firm executes customer foreclosure if and only if the ownership stake is intermediate. Furthermore, consumer welfare is maximized when the ownership share is intermediate

    The goals of competition law for merger analysis in developing jurisdictions : a critical appraisal of merger analysis under Kenyan competition law

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    Thesis (LLD (Mercantile Law))--University of Pretoria, 2023.This thesis considers whether jurisdictional exigencies should influence competition law enforcement, with a specific focus on merger analysis. It examines various approaches and schools of thought regarding the goals of competition law and how these play out within jurisdictional parameters. The history of enforcement of American antitrust is scrutinised to establish the nature of the interplay between greater economic policy direction and the goals of competition law. The study also explores the issue of convergence and whether developing jurisdictions should align their competition law to that of developed jurisdictions with mature competition law.Mercantile LawLLD (Mercantile Law)wUnrestricte
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