Non-competition covenants in acquisition deals

Alcino Azevedo, Paulo J. Pereira, Artur Rodrigues

Research output: Contribution to journalArticle

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 languageEnglish
Pages (from-to)61-65
Number of pages5
JournalEconomics Letters
Volume143
Early online date2 Apr 2016
DOIs
Publication statusPublished - Jun 2016

Bibliographical note

© 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • non-competition covenants
  • acquisitions
  • real options

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