Non-Competition Covenants in Acquisition Deals

14 Pages Posted: 17 May 2018

See all articles by Alcino Azevedo

Alcino Azevedo

Aston Business School

Paulo Jorge Pereira

Universidade do Porto - Faculdade de Economia (FEP)

Artur Rodrigues

University of Minho - NIPE and School of Economics and Management

Date Written: March 1, 2016

Abstract

We study the changes in the consumers’ and producers’ surplus associated with acquisition deals where there is a non-competition covenant that forbids the seller from re-entering the market over a given time period. We find that these acquisition deals can lead to significant negative (positive) changes in the producers’ (consumers’) surplus, which decrease significantly with the time period of the covenant. We also show that the effect of the time period of the covenant on the welfare change can be positive or negative. It depends largely on the market conditions, such as the profit uncertainty and growth rate.

Keywords: Non-Competition Covenants, Acquisitions, Real Options

JEL Classification: G34, D81

Suggested Citation

Azevedo, Alcino and Pereira, Paulo and Rodrigues, Artur, Non-Competition Covenants in Acquisition Deals (March 1, 2016). Economics Letters, Vol. 143, 2016. Available at SSRN: https://ssrn.com/abstract=3173604

Alcino Azevedo

Aston Business School ( email )

Econ., Finance & Enterpreneurship
Aston Business School
Birmingham, B4 7ET
United Kingdom

Paulo Pereira

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

Artur Rodrigues (Contact Author)

University of Minho - NIPE and School of Economics and Management ( email )

School of Economics and Management
Braga, 4710-057
Portugal

Register to save articles to
your library

Register

Paper statistics

Downloads
12
Abstract Views
222
PlumX Metrics