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Real Market Concentration through Partial Acquisitions

Patricia Charletty, Marie-Cecile Fagart and Saïd Souam ()
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Patricia Charletty: Crest

No 2004-07, Working Papers from Center for Research in Economics and Statistics

Abstract: We study horizontal partial acquisitions in an oligopolistic industry in the absence of synergies.Contrary to existing results, we find that a dominant shareholder may choose to acquire sharesin a competitor although the aggregate profit of the group of firms under his control, and eventhe greater group of firms in which he has a stake, is reduced. This is due to a "favorite" e¤ect:after the acquisition, the dominant shareholder will favor the firm in which he eventually holdsthe relatively higher share to the detriment of shareholders of the other firms. For this reason, ablock of shares can be bought at a discount when the value of the firm of the initiator decreasespost acquisition. Moreover, we show that the existence of initial silent toeholds in rivals enhancesthe incentive for a dominant shareholder to buy shares in other firms in the industry, whereascontrolling ones may discourage them.

Date: 2004
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