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

Management Science, 2012, 58(8), 1482-1501

AFA 2009 San Francisco Meetings Paper

56 Pages Posted: 4 Feb 2008 Last revised: 16 Sep 2015

Jaideep Shenoy

University of Connecticut

Date Written: February 4, 2008

Abstract

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.

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

JEL Classification: G34, D43, K21, L40

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

Jaideep Shenoy (Contact Author)

University of Connecticut ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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