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An Examination of the Efficiency, Foreclosure, and Collusion Rationales for Vertical Takeovers

Jaideep Shenoy

University of Connecticut

February 4, 2008

Management Science, 2012, 58(8), 1482-1501
AFA 2009 San Francisco Meetings Paper

We investigate the efficiency, foreclosure, and collusion rationales for a large sample of vertical takeovers. The efficiency rationale posits that vertical integration prevents future holdup between non-integrated suppliers and customers. In contrast, the foreclosure and collusion rationales suggest that vertical integration harms competition. To distinguish between these hypotheses, we examine the announcement period wealth effects of the merging firms, acquirer rivals, target rivals, and corporate customers. Our results suggest that firms alter their vertical boundaries in a manner that is consistent with the efficiency rationale. Our tests do not find evidence supportive of the anti-competitive rationales for vertical integration.

Number of Pages in PDF File: 56

Keywords: Vertical Integration, Vertical Mergers, Takeovers, Efficiency, Collusion, Foreclosure

JEL Classification: G34, D43, K21, L40

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Date posted: February 4, 2008 ; Last revised: September 16, 2015

Suggested Citation

Shenoy, Jaideep, An Examination of the Efficiency, Foreclosure, and Collusion Rationales for Vertical Takeovers (February 4, 2008). Management Science, 2012, 58(8), 1482-1501; AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1089043 or http://dx.doi.org/10.2139/ssrn.1089043

Contact Information

Jaideep Shenoy (Contact Author)
University of Connecticut ( email )
School of Business
2100 Hillside Road
Storrs, CT 06269
United States
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