Foreclosure and Tunneling with Partial Vertical Ownership

Matthias Hunold () and Vasilisa Petrishcheva ()
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Matthias Hunold: University of Siegen
Vasilisa Petrishcheva: University of Potsdam

No 57, CEPA Discussion Papers from Center for Economic Policy Analysis

Abstract: We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target (tunneling). Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.

Keywords: Backward ownership; Entry deterrence; Foreclosure; Minority shareholdings; Partial ownership; Uniform pricing; Vertical integration (search for similar items in EconPapers)
JEL-codes: G34 L22 L40 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:pot:cepadp:57

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