Measuring unilateral effects in partial horizontal acquisitions

Unilateral Effects Screens for Partial Horizontal Acquisitions: The Generalized HHI and GUPPI

“…Table 5 presents the pre-acquisition prices, margins, and diversion ratios for Wilkinson Sword and Gillette. Since these …rms are multi-product …rms, the data refers to the median razor package of each …rm (across all their products) and is computed using the demand and cost estimates in Brito et al (2014a by competition agencies, typically in phase I-type of investigations, to screen potential anticompetitive unilateral e¤ects regarding partial horizontal acquisitions. The proposed generalized indicators can deal with all types of acquisitions that may lessen competition in the industry: acquisitions by owners that are internal to the industry (rival …rms) and engage in cross-ownership, as well as acquisitions by owners that are external to the industry and engage in common-ownership.…”

“…Such in ‡uence can lessen competition because it may be used to induce the rival to compete less aggressively against the acquiring party. Brito et al (2014a) propose an empirical structural methodology to quantitatively assess the unilateral competitive e¤ects of partial horizontal acquisitions. However, competition agencies are typically given a very short period to analyze a potential acquisition upon receiving its noti…cation, with little data available before deciding whether to issue a second request.…”

Minority Share Acquisitions and Collusion: Evidence from the Introduction of National Leniency Programs

“…flow rights. 6 Malueg (1992), Dietzenbacher, Smid, and Volkerink (2000), and Gilo, Moshe, and Spiegel (2006) show that MS acquisitions can also facilitate tacit collusion. The reason is that when firms hold MS in rivals, they internalize part of the negative competitive externality that they impose on rivals when they deviate from a collusive agreement.…”

“…They conclude that the price-cost margins in the Dutch financial sector are 8% higher in a Cournot model and 2% higher in a differentiated goods, price competition, model than they would be absent cross-ownership. Brito, Ribeiro, and Vasconcelos (2014) propose a methodology to evaluate the unilateral effects of partial cross ownership and apply it to several MS acquisitions in the wet shaving industry. Among other things, they estimate that Gillette's acquisition of a 22.9% nonvoting equity interest in Wilkinson Sword in 1990 had only a negligible negative effect on prices, but a counterfactual acquisition of a 22.9% voting equity would have led to a 2.1% − 2.7% increase in the price of Wilkinson Sword wet shaving razor blades.…”

“…Indeed, following the U.S. lead in 1993, many countries have introduced an LP precisely in order to detect existing cartels and deter new collusive agreements. 9 Hence, once an LP is introduced, firms would need to stabilize 6 Intuitively, the acquirer may then have an incentive to use his control rights to soften the target's behavior (by setting high prices or low quantities) in order to boost the profits of his own firm. The resulting outcome could be less competitive than under a full horizontal merger, where the acquirer cares equally about the profits of both firms.…”