Buying to Sell: Private Equity Buyouts and Industrial Restructuring

33 Pages Posted: 29 Jul 2013

See all articles by Pehr-Johan Norback

Pehr-Johan Norback

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: July 29, 2013

Abstract

We show 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 by buyers incentives to block rivals from obtaining assets. These incentives benefit consumers, but harm rivals in the industry. Evaluating optimal antitrust policy, we underscore that an active private equity market can aid antitrust authorities by triggering welfare-enhancing mergers and by preventing concentration in the industry. By spreading the cost of specializing in restructuring over multiple markets, private equity firms 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: G320, G340, L130, L220, L400

Suggested Citation

Norback, Pehr-Johan and Persson, Lars and Tåg, Joacim, Buying to Sell: Private Equity Buyouts and Industrial Restructuring (July 29, 2013). CESifo Working Paper Series No. 4338. Available at SSRN: https://ssrn.com/abstract=2302493

Pehr-Johan Norback

Research Institute of Industrial Economics (IFN) ( email )

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

Lars Persson (Contact Author)

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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