Private Equity, Consumers, and Competition

Abstract

This paper studies how product market competition shapes the impact of PE acquisitions on consumers. We examine nursing home buyouts and find PE-owned facilities exhibit greater competitive sensitivity, competing more aggressively when competitive incentives are strong and exploiting market power more aggressively when competitive incentives are weak. We find PE-owned facilities are more sensitive to local market competition and are more responsive to a pro-competitive policy helping consumers compare nursing homes. This indicates that regulators should regard the competitive sensitivity of acquirers in addition to the concentration of markets where acquisitions occur, and consider pro-competitive policies to mitigate or even reverse PE's potentially adverse consequences.

Keywords: Private equity, Buyouts, Competition, Health care, Nursing homes, Product quality, Disclosure, Ratings

JEL Classification: G34, I11, I18, L11, L13, L15