Some Antitrust Concerns of Partial Equity Acquisitions

If a firm acquires stock in a competitor, further price competition may impose a penalty in the form of devalued holdings. The purchase, by penalizing price cuts, may help to support tacit collusion between firms. This paper establishes how the partial acquisition of outstanding common shares enables firms to accomplish this objective without formal coordination. However, this price-cutting disincentive is shown to be insignificant when the competitive overlaps between firms occur in markets that generate some fraction of total corporate profits.