Non-competition covenants in acquisition deals

Azevedo, Alcino; Pereira, Paulo J.; Rodrigues, Artur

Abstract

© 2016 Elsevier B.V. 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 acquisition 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.

Citation

Azevedo, A., Pereira, P. J., & Rodrigues, A. (2016). Non-competition covenants in acquisition deals. Economics letters, 143, 61-65. https://doi.org/10.1016/j.econlet.2016.03.025

• Journal Article Type: Article
• Acceptance Date: Mar 30, 2016
• Online Publication Date: Apr 2, 2016
• Publication Date: Jun 1, 2016
• Deposit Date: Apr 15, 2016
• Publicly Available Date: Apr 15, 2016
• Journal: Economics letters
• Print ISSN: 0165-1765
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 143
• Pages: 61-65
• DOI: https://doi.org/10.1016/j.econlet.2016.03.025
• Keywords: Non-competition covenants, Acquisitions, Real options
• Public URL: https://hull-repository.worktribe.com/output/436211
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0165176516300970
• Additional Information: This article is maintained by: Elsevier; Article Title: Non-competition covenants in acquisition deals; Journal Title: Economics Letters; CrossRef DOI link to publisher maintained version: http://dx.doi.org/10.1016/j.econlet.2016.03.025; Content Type: article; Copyright: © 2016 Elsevier B.V. All rights reserved.
• Contract Date: Apr 15, 2016