Do Board Connections between Product Market Peers Impede Competition?

58 Pages Posted: 13 Apr 2022

See all articles by Radhakrishnan Gopalan

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Renping Li

Washington University in St. Louis - John M. Olin Business School

Alminas Zaldokas

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: March 9, 2022

Abstract

Using a treated-control matched sample, we find that after a new direct board connection is formed to a product market peer, a firm's gross margin significantly increases by 0.8%. Gross margin also rises after a new indirect board connection is formed to a product market peer through a third intermediate firm. We see consistent results when the new connections are caused by changes on the board of an intermediate firm. Such third-party initiated changes are unlikely to be related to the economic prospects of the focal firm. Consistent with the anti-competitive mechanism, the effects are stronger when the newly connected peers are located closer to each other or have more similar businesses and when the firms are in industries with greater potential benefits of collusion.

Keywords: board of directors, social networks, collusion, antitrust, natural experiments

JEL Classification: G34, G38, L22

Suggested Citation

Gopalan, Radhakrishnan and Li, Renping and Zaldokas, Alminas, Do Board Connections between Product Market Peers Impede Competition? (March 9, 2022). Available at SSRN: https://ssrn.com/abstract=4053853 or http://dx.doi.org/10.2139/ssrn.4053853

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Renping Li (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Alminas Zaldokas

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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