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Divesting ownership in a rival

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  • Brito, Duarte
  • Cabral, Luís
  • Vasconcelos, Helder

Abstract

We examine the consumer welfare effect of a firm's partial ownership of a competitor and compare the implications of alternative forms of divestiture. We identify conditions under which turning voting shares into non-voting shares is preferable to selling the shares to the firm's current shareholders (an option frequently chosen). We also show that selling the voting shares to a large independent shareholder is preferable to selling them to small shareholders. We provide additional theoretical results and apply them to the divestiture of Portugal Telecom's holdings in PTM.

Suggested Citation

  • Brito, Duarte & Cabral, Luís & Vasconcelos, Helder, 2014. "Divesting ownership in a rival," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 9-24.
    • Handle: RePEc:eee:indorg:v:34:y:2014:i:c:p:9-24
    DOI: 10.1016/j.ijindorg.2014.02.007
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    References listed on IDEAS

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    Cited by:

    1. Brito, Duarte & Osório, António & Ribeiro, Ricardo & Vasconcelos, Helder, 2018. "Unilateral effects screens for partial horizontal acquisitions: The generalized HHI and GUPPI," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 127-189.
    2. Liu, Longhua & Lin, Junshan & Qin, Chengzhong, 2018. "Cross-holdings with asymmetric information and technologies," Economics Letters, Elsevier, vol. 166(C), pages 83-85.
    3. Cabral, Luis & Vasconcelos, Helder & Brito, Duarte, 2016. "Competitive Effects of Partial Control in an Input Supplier," CEPR Discussion Papers 11397, C.E.P.R. Discussion Papers.
    4. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2018. "Quantifying the coordinated effects of partial horizontal acquisitions," European Economic Review, Elsevier, vol. 110(C), pages 108-149.
    5. Jie Shuai & Mengyuan Xia & Chenhang Zeng, 2023. "Upstream market structure and downstream partial ownership," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 22-47, January.
    6. Rupayan Pal & Emmanuel Petrakis, 2024. "Cross-ownership in duopoly: Are there any incentives to divest?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-003, Indira Gandhi Institute of Development Research, Mumbai, India.
    7. Qing Hu & Aika Monden & Tomomichi Mizuno, 2022. "Downstream Cross‐Holdings and Upstream R&D," Journal of Industrial Economics, Wiley Blackwell, vol. 70(3), pages 775-789, September.
    8. Mukherjee, Arijit & Wang, Leonard F.S. & Sun, Ji, 2024. "Bertrand-Cournot profit reversal in a vertical structure with cross ownership," Economics Letters, Elsevier, vol. 238(C).
    9. Mukherjee, Arijit, 2023. "Merger and product innovation under cross ownership and cooperative R&D," Economics Letters, Elsevier, vol. 233(C).
    10. Hariskos, W. & Königstein, M. & Papadopoulos, K.G., 2022. "Anti-competitive effects of partial cross-ownership: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 399-409.
    11. Hao Cheng & Xiaoting Wu & Chenhang Zeng, 2024. "Can cross-holdings benefit consumers?," Journal of Economics, Springer, vol. 141(3), pages 245-273, April.
    12. Dai, Miao & Benchekroun, Hassan & Long, Ngo Van, 2022. "On the profitability of cross-ownership in Cournot nonrenewable resource oligopolies: Stock size matters," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    13. Heim, Sven & Hüschelrath, Kai & Laitenberger, Ulrich & Spiegel, Yossi, 2017. "Minority share acquisitions and collusion: Evidence from the introduction of national leniency programs," ZEW Discussion Papers 17-037, ZEW - Leibniz Centre for European Economic Research.
    14. Arijit Mukherjee, 2023. "Losses from cross-holdings in a duopoly with convex cost and strategic input price determination," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(1), pages 81-91, April.
    15. Hongkun Ma & Chenhang Zeng, 2022. "The effects of optimal cross holding in an asymmetric oligopoly," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1053-1066, October.
    16. Li, Sanxi & Ma, Hongkun & Zeng, Chenhang, 2015. "Passive cross holding as a strategic entry deterrence," Economics Letters, Elsevier, vol. 134(C), pages 37-40.
    17. Panagiotis N. Fotis & Michael L. Polemis & Konstantinos Eleftheriou, 2017. "Unilateral effects of partial acquisitions: consistent calculation of GUPPI under horizontal merger guidelines within the EU," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(3), pages 315-325, September.
    18. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2014. "Measuring unilateral effects in partial horizontal acquisitions," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 22-36.
    19. Stenbacka, Rune & Van Moer, Geert, 2021. "Cross ownership and divestment incentives," Economics Letters, Elsevier, vol. 201(C).

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    More about this item

    Keywords

    Oligopoly; Divestiture; Control; Preferred stock;
    All these keywords.

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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