Market power and systematic risk

Fabian Hollstein, Marcel Prokopczuk and Christoph Matthias Würsig

Financial Management, 2024, vol. 53, issue 2, 233-266

Abstract: We examine the impact of product market competition on firms' systematic risk. Using a measure of total product market similarity, we document a strong negative relationship between market power and market betas. The effect more than triples in the most recent period of low competition. Anticompetitive mergers result in a significant reduction in market betas. Firms facing less competition seem to be partially insulated from systematic discount‐rate shocks. Lower equity costs therefore imply that market power is partly self‐perpetuating.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bla:finmgt:v:53:y:2024:i:2:p:233-266

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