Buying to Sell: Private Equity Buyouts and Industrial Restructuring
Pehr-Johan Norbäck (),
Lars Persson and
No 8992, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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 benefit 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 firms 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 (search for similar items in EconPapers)
JEL-codes: G32 G34 L13 L22 (search for similar items in EconPapers)
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Working Paper: Buying to Sell: A Theory of Buyouts (2010)
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