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Integration contracts and asset complementarity: Theory and evidence from US data

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  • Di Giannatale, Paolo
  • Passarelli, Francesco

Abstract

Firms sign integration contracts to increase profits from trade and competition with third parties. An integration contract can improve complementarity among partners (productivity effect) and increase their power in the marketplace (strategic effect). We investigate three bilateral contracts: M&A, Minority Stake purchase, and Joint Venture. By using a cooperative game approach, we characterize quite general profitability conditions. To estimate the validity of those conditions, we adopt a novel complementarity index. It shows that for any kind of contract, a significant share of the integration profits is due to the “strategic effect” of increased market power. Productivity gains are relatively less important, and in some cases they are negative.

Suggested Citation

  • Di Giannatale, Paolo & Passarelli, Francesco, 2018. "Integration contracts and asset complementarity: Theory and evidence from US data," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 192-222.
    • Handle: RePEc:eee:indorg:v:61:y:2018:i:c:p:192-222
    DOI: 10.1016/j.ijindorg.2018.09.002
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    More about this item

    Keywords

    Cooperative games; Merger; Acquisition; Joint venture; Complementarity;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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