Buying to Sell: Private Equity Buyouts and Industrial Restructuring

47 Pages Posted: 28 Sep 2012

See all articles by Pehr-Johan Norbäck

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Joacim Tåg

Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 4 versions of this paper

Date Written: May 2012

Abstract

We investigate how temporary ownership by private equity firms affects industry structure, competition and welfare. Temporary ownership leads to strong investment incentives because equilibrium resale prices are determined partly by buyers' incentives to block rivals from obtaining assets. These strong incentives benefi t consumers, but harm rivals in the industry. Evaluating optimal antitrust policy, we point out that an active private equity market can aid antitrust authorities by triggering welfare enhancing mergers and by preventing concentration in the industry. By spreading costs of specializing in restructuring over multiple markets, private equity fi rms have stronger incentives than incumbents to invest in acquiring specialized restructuring skills.

Keywords: antitrust, competition policy, leveraged buyouts, mergers and acquisitions, private equity, temporary ownership

JEL Classification: G32, G34, L13, L22

Suggested Citation

Norbäck, Pehr-Johan and Persson, Lars and Tåg, Joacim, Buying to Sell: Private Equity Buyouts and Industrial Restructuring (May 2012). CEPR Discussion Paper No. DP8992. Available at SSRN: https://ssrn.com/abstract=2153424

Pehr-Johan Norbäck (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Joacim Tåg

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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