EconPapers    
Economics at your fingertips  
 

Shelving or Developing? The Acquisition of Potential Competitors under Financial Constraints

Chiara Fumagalli, Massimo Motta and Emanuele Tarantino

No 1197, Working Papers from Barcelona Graduate School of Economics

Abstract: We analyse the optimal policy of an antitrust authority towards the acquisitions of potential competitors in a model with financial constraints. With respect to traditional mergers, these acquisitions trigger a new trade-off. On the one hand, the acquirer may decide to shelve the project of the potential entrant. On the other hand, the acquisition may allow for the development of a project that would otherwise never reach the market. We first show that a merger policy does not need to be lenient towards acquisitions of potential competitors to take advantage of their pro-competitive effects on project development. This purpose is achieved by a policy that pushes the incumbent towards the acquisition of the potential entrants that lack the financial resources to develop the project. To this end, the implementation of this policy can be contingent to the bid formulated by the acquirer. However, we also show that, if the anticipation of a takeover relaxes the target firm's financial constraints, a more lenient merger policy, which allows for the acquisition of firms that have already committed to enter the market, may be optimal.

Keywords: merger policy; digital markets; potential competition; conglomerate mergers (search for similar items in EconPapers)
JEL-codes: L41 L13 K21 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-com and nep-law
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/1197.pdf (application/pdf)

Related works:
Working Paper: Shelving or developing? The acquisition of potential competitors under financial constraints (2020) Downloads
Working Paper: Shelving or developing? The acquisition of potential competitors under financial constraints (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1197

Access Statistics for this paper

More papers in Working Papers from Barcelona Graduate School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().

 
Page updated 2020-11-27
Handle: RePEc:bge:wpaper:1197