Barbarians at the Store? Private Equity, Products, and Consumers

50 Pages Posted: 6 Feb 2017 Last revised: 17 Jul 2018

See all articles by Cesare Fracassi

Cesare Fracassi

University of Texas at Austin

Alessandro Previtero

Indiana University - Kelley School of Business - Department of Finance; National Bureau of Economic Research (NBER)

Albert Sheen

University of Oregon - Department of Finance

Date Written: June 19, 2018

Abstract

We investigate the effects of private equity on product markets, using detailed price and sales data for an extensive number of consumer products. In the years following a buyout, target firms increase sales by 53% compared to matched control firms. Price increases---roughly 1% on existing products---do not drive this growth. The launch of new products and geographic expansion do. Competitors lose shelf space and marginally raise prices themselves. These growth results hold in particular for private firms, while public targets in fact contract. Private equity thus appears to ease financial constraints, provide expertise to manage growth, and reduce investment where needed. Our findings question the common view that private equity substantially increases prices, harming consumers.

Keywords: Private Equity, Product Markets, Pricing Strategy, Consumer Products

JEL Classification: G24, L11

Suggested Citation

Fracassi, Cesare and Previtero, Alessandro and Sheen, Albert, Barbarians at the Store? Private Equity, Products, and Consumers (June 19, 2018). Kelley School of Business Research Paper No. 17-12. Available at SSRN: https://ssrn.com/abstract=2911387 or http://dx.doi.org/10.2139/ssrn.2911387

Cesare Fracassi (Contact Author)

University of Texas at Austin ( email )

McCombs School of Business
2110 Speedway Stop B6600
Austin, TX 78712-1276
United States
512-232-6843 (Phone)

HOME PAGE: http://https://faculty.mccombs.utexas.edu/cesare.fracassi/

Alessandro Previtero

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
+1 (512) 581-5420 (Phone)

HOME PAGE: http://aleprevitero.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Albert Sheen

University of Oregon - Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

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