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Unilateral effects screens for partial horizontal acquisitions: the generalized HHI and GUPPI

Publication . Brito, Duarte; Osório, António; Ribeiro, Ricardo; Vasconcelos, Hélder

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose a generalization of the two most traditional indicators used to screen unilateral anti-competitive effects - the Herfindahl–Hirschman Index and the Gross Upward Price Pressure Index - to partial horizontal acquisition settings. The proposed generalized indicators are endogenously derived under a probabilistic voting model in which the manager of each firm is elected in a shareholder assembly between two potential candidates who seek to obtain utility from an exogenous rent associated with corporate office. The model (i) can cope with settings involving all types of owners and rights: owners that can be internal to the industry (rival firms) and external to the industry; and rights that can capture financial and corporate control interests, can be direct and indirect, can be partial or full, (ii) yields an endogenous measure of the owners ultimate corporate control rights, and (iii) can also be used - in case the potential acquisition is inferred to likely enhance market power - to devise divestiture structural remedies. We also provide an empirical application of the two proposed generalized indicators to several acquisitions in the wet shaving industry, with the objective of providing practitioners with a step-by-step illustration of how to compute them in antitrust cases.

2018Journal article

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Can partial horizontal ownership lessen competition more than a monopoly?

Publication . Brito, Duarte; Ribeiro, Ricardo; Vasconcelos, Helder

In this paper we investigate the anti-competitive effects of partial horizontal ownership in a setting where: (i) two cost-asymmetric firms compete a la Cournot; (ii) managers deal with eventual conflicting interests of the different shareholders by maximizing a weighted sum of the two firms' operating profits; and (iii) weights result from the corporate control structure of the firm they run. Within this theoretical structure, we find that if the manager of the more efficient firm weights the operating profit of the (inefficient) rival more than its own profit, then partial ownership will lessen competition more than a monopoly when both firms produce. (C) 2019 Elsevier B.V. All rights reserved.

2019Journal article

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Quantifying the coordinated effects of partial horizontal acquisitions

Publication . Brito, Duarte; Ribeiro, Ricardo; Vasconcelos, Helder

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology, which can deal with settings involving all types of owners and ownership rights, to quantify the coordinated effects of partial horizontal acquisitions on differentiated products industries, by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained. We also provide an empirical application of the methodology to several acquisitions in the wet shaving industry that give rise to cross- and common-ownership structures. The results are as follows (i) the incentives to coordinate of the firms that the acquiring party is – pre-acquisition – able to influence are non-decreasing with any acquisition; (ii) the incentives to coordinate of the acquired firm are non-decreasing with acquisitions involving full or partial both financial and corporate control rights, but non-increasing with acquisitions involving full or partial solely financial rights; and (iii) the incentives to coordinate of the remaining firms in the industry are non-increasing with any acquisition. This implies that the coordinated effects of partial horizontal acquisitions are, in general, ambiguous, which illustrates the importance of an empirical structural methodology.

2018Journal article

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