Working Paper: CEPR ID: DP8277
Authors: Heiko Karle; Tobias Klein; Konrad O. Stahl
Abstract: We study a differentiated product market in which an investor initially owns a controlling stake in one of two competing firms and may acquire a non-controlling or a controlling stake in a competitor, either directly using her own assets, or indirectly via the controlled firm. While industry profits are maximized within a symmetric two product monopoly, the investor attains this only in exceptional cases. Instead, she sometimes acquires a non-controlling stake. Or she invests asymmetrically rather than pursuing a full takeover if she acquires a controlling one. Generally, she invests indirectly if she only wants to affect the product market outcome, and directly if acquiring shares is profitable per se.
Keywords: differentiated products; private benefits of control; separation of ownership and control
JEL Codes: L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investor controlling one firm (G34) | Acquisition of additional stakes in competitor (G34) |
| Acquisition decisions (L14) | Equilibrium prices and profits of both firms (D41) |
| Block holder's decisions regarding control rights or cash flow rights (G34) | Equilibrium prices and profits of the firms involved (D41) |
| Initial ownership configurations (Y20) | Differences in outcomes (I14) |
| Ownership concentration (G32) | Acquisition gains (G34) |
| Investor's objectives based on initial ownership structures (G32) | Asymmetric outcomes (C72) |
| Acquisition decisions (L14) | Implications for competition policy (L49) |