Working Paper: CEPR ID: DP8992
Authors: Pehr-Johan Norbck; Lars Persson; Joacim Tag
Abstract: We investigate how temporary ownership by private equity firms affects industry structure, competition and welfare. Temporary ownership leads to strong investment incentives because equilibrium resale prices are determined partly by buyers' incentives to block rivals from obtaining assets. These strong incentives benefi t consumers, but harm rivals in the industry. Evaluating optimal antitrust policy, we point out that an active private equity market can aid antitrust authorities by triggering welfare enhancing mergers and by preventing concentration in the industry. By spreading costs of specializing in restructuring over multiple markets, private equity fi rms have stronger incentives than incumbents to invest in acquiring specialized restructuring skills.
Keywords: Antitrust; Competition Policy; Leveraged Buyouts; Mergers and Acquisitions; Private Equity; Temporary Ownership
JEL Codes: G32; G34; L13; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| temporary ownership (H82) | investment incentives (O31) |
| investment incentives (O31) | consumer surplus (D46) |
| investment incentives (O31) | rival firms' profit margins (L21) |
| private equity firms (G24) | welfare-enhancing mergers (D69) |
| temporary ownership (H82) | specialization in restructuring (L16) |