Evaluating Partial Divestitures When Vertical Relations are Important

We use the approach of the partial-ownership literature to model the partial sale of a firm’s productive capacity. The framework is applied to the Portuguese outdoor advertising industry. We develop and estimate—with the use product-level data—a differentiated products equilibrium model that: (1) includes a wholesale and a retail level; and (2) allows firms to have several shareholders. The estimated equilibrium model is used to perform several counterfactual exercises that involve the sale to various buyers of parts of a firm’s productive capacity—with and without synergies—instead of the sale of the whole firm to a single buyer, as is usually considered in the literature. The results show that the impact of a divestiture depends on the identity of the buyers and the amount of capacity sold. More interestingly, the results also show that a divestiture may have a net anti-competitive impact.