Measuring Unilateral Effects in Partial Acquisitions

Abstract

To what extent does partial ownership unilaterally lessen competition and decrease consumer surplus? This paper proposes an empirical structural methodology to quantitatively answer this question. Because partial acquisitions that do not result in effective control present competitive concerns distinct from partial acquisitions involving effective control, we identify and distinguish two distinct rights: financial interest and corporate control. The empirical structural methodology can deal with differentiated products industries and can be used to examine the unilateral impact on prices, market shares, profits and consumer welfare of partial acquisitions involving only financial interests, control interests or both. Furthermore, it nests full mergers (100% financial and control acquisitions) as a special case. The general strategy models supply competition in a setting where partial ownership may or may not correspond to control and uses a Nash-Bertrand equilibrium assumption jointly with demand side estimates to recover marginal costs, which are then used to simulate the unilateral effects of actual and hypothetical partial acquisitions. We provide an empirical application of the methodology to several acquisitions in the wet shaving industry.