Non-competition covenants in acquisition deals

Alcino Azevedo, Paulo J. Pereira and Artur Rodrigues

Economics Letters, 2016, vol. 143, issue C, 61-65

Abstract: We study the changes in the consumers’ and producers’ surplus associated with acquisition deals where there is a non-competition covenant that forbids the seller from re-entering the market over a given time period. We find that these acquisition deals can lead to significant negative (positive) changes in the producers’ (consumers’) surplus, which decrease significantly with the time period of the covenant. We also show that the effect of the time period of the covenant on the welfare change can be positive or negative. It depends largely on the market conditions, such as the profit uncertainty and growth rate.

Keywords: Non-competition covenants; Acquisitions; Real options (search for similar items in EconPapers)
JEL-codes: D81 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:143:y:2016:i:c:p:61-65

DOI: 10.1016/j.econlet.2016.03.025

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