Market Power and Systematic Risk

49 Pages Posted: 28 May 2021 Last revised: 9 Mar 2022

See all articles by Fabian Hollstein

Fabian Hollstein

Saarland University

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Christoph Wuersig

Leibniz Universität Hannover - Faculty of Economics and Management

Date Written: February 19, 2021

Abstract

We investigate the impact of product market competition on firms' systematic risk. Using a measure of total product market similarity, we document a strong negative link between market power and market betas. There is a more than threefold increase in the effect during the most recent low-competition period. Announcements of anti-competitive mergers lead to a significant reduction in market betas, underlining the causality of the market power--systematic risk relationship. Firms that face less competition appear to be partly insulated from systematic discount-rate shocks. Lower equity costs therefore mean that market power is in part self-perpetuating.

Keywords: Market power, systematic risk, market beta, mergers and acquisitions, product market competition, discount-rate beta

JEL Classification: G14, L11, G34, L25, L22

Suggested Citation

Hollstein, Fabian and Prokopczuk, Marcel and Prokopczuk, Marcel and Wuersig, Christoph, Market Power and Systematic Risk (February 19, 2021). Available at SSRN: https://ssrn.com/abstract=3789016 or http://dx.doi.org/10.2139/ssrn.3789016

Fabian Hollstein (Contact Author)

Saarland University ( email )

Campus
Saarbrucken, Saarland D-66123
Germany

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Christoph Wuersig

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

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