Non-competition covenants in acquisition deals

Alcino Azevedo; Paulo J. Pereira; Artur Rodrigues

doi:10.1016/j.econlet.2016.03.025

Non-competition covenants in acquisition deals

Alcino Azevedo, Paulo J. Pereira, Artur Rodrigues

Research output: Contribution to journal › Article › peer-review

Abstract

We study the changes in the consumers’ and producers’ surplus associated with acquisition deals where there is a non-competition covenant that forbids the seller from re-entering the market over a given time period. We find that these cquisition deals can lead to significant negative (positive) changes in the producers’ consumers’) surplus, which decrease significantly with the time period of the covenant. We also show that the effect of the time period of the covenant on the welfare change can be positive or negative. It depends largely on the market conditions, such as the profit uncertainty and growth rate.

Original language	English
Pages (from-to)	61-65
Number of pages	5
Journal	Economics Letters
Volume	143
Early online date	2 Apr 2016
DOIs	https://doi.org/10.1016/j.econlet.2016.03.025
Publication status	Published - Jun 2016

Bibliographical note

Keywords

non-competition covenants
acquisitions
real options

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10.1016/j.econlet.2016.03.025

Non-competition covenants in acquisition deals
© 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 360 KBLicence: CC BY-NC-ND 3.0

Cite this

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title = "Non-competition covenants in acquisition deals",

abstract = "We study the changes in the consumers{\textquoteright} and producers{\textquoteright} surplus associated with acquisition deals where there is a non-competition covenant that forbids the seller from re-entering the market over a given time period. We find that these cquisition deals can lead to significant negative (positive) changes in the producers{\textquoteright} consumers{\textquoteright}) surplus, which decrease significantly with the time period of the covenant. We also show that the effect of the time period of the covenant on the welfare change can be positive or negative. It depends largely on the market conditions, such as the profit uncertainty and growth rate.",

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AU - Azevedo, Alcino

AU - Pereira, Paulo J.

AU - Rodrigues, Artur

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N2 - We study the changes in the consumers’ and producers’ surplus associated with acquisition deals where there is a non-competition covenant that forbids the seller from re-entering the market over a given time period. We find that these cquisition deals can lead to significant negative (positive) changes in the producers’ consumers’) surplus, which decrease significantly with the time period of the covenant. We also show that the effect of the time period of the covenant on the welfare change can be positive or negative. It depends largely on the market conditions, such as the profit uncertainty and growth rate.

AB - We study the changes in the consumers’ and producers’ surplus associated with acquisition deals where there is a non-competition covenant that forbids the seller from re-entering the market over a given time period. We find that these cquisition deals can lead to significant negative (positive) changes in the producers’ consumers’) surplus, which decrease significantly with the time period of the covenant. We also show that the effect of the time period of the covenant on the welfare change can be positive or negative. It depends largely on the market conditions, such as the profit uncertainty and growth rate.

KW - non-competition covenants

KW - acquisitions

KW - real options

UR - https://www.sciencedirect.com/science/article/pii/S0165176516300970?via%3Dihub

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DO - 10.1016/j.econlet.2016.03.025

M3 - Article

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VL - 143

SP - 61

EP - 65

JO - Economics Letters

JF - Economics Letters

ER -

Non-competition covenants in acquisition deals

Abstract

Bibliographical note

Keywords

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