Integration contracts and asset complementarity: Theory and evidence from US data

Paolo Di Giannatale, Francesco Passarelli

Research output: Journal PublicationReview articlepeer-review

Abstract

Firms sign integration contracts to increase profits from trade and competition with third parties. An integration contract can improve complementarity among partners (productivity effect) and increase their power in the marketplace (strategic effect). We investigate three bilateral contracts: M&A, Minority Stake purchase, and Joint Venture. By using a cooperative game approach, we characterize quite general profitability conditions. To estimate the validity of those conditions, we adopt a novel complementarity index. It shows that for any kind of contract, a significant share of the integration profits is due to the “strategic effect” of increased market power. Productivity gains are relatively less important, and in some cases they are negative.

Original languageEnglish
Pages (from-to)192-222
Number of pages31
JournalInternational Journal of Industrial Organization
Volume61
DOIs
Publication statusPublished - Nov 2018

Keywords

  • Acquisition
  • Complementarity
  • Cooperative games
  • Joint venture
  • Merger

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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