The Competitive Effects of Passive Minority Equity Interests: Reply

In a recent article published in this journal, Jon Dubrow examines the acquisitions of passive minority equity interests. The focus of his article is the treatment of these transactions by the courts and the federal antitrust agencies, including their treatment of the investment-only exemption from Section 7 of the Clayton Act. One section of the article discusses the economic foundation for the competitive effects analysis of these acquisitions, focusing mainly on our article recently published in this journal. Dubrow accepts the basic economic framework set out in our earlier article, and the analysis of factors that affect the acquiring firm's control or influence over the target. However, Dubrow is highly critical of our treatment of the financial interest of the acquiring firm and particularly the partial ownership scenario that we refer to as "silent financial interest." He argues that our financial interest analysis ignores several important "real-world" complicating factors that significantly reduce or even eliminate the economic incentives of the acquiring firm to reduce its competitive intensity following the acquisition of a passive minority financial interest. In this reply, we respond to Dubrow's criticisms and present our view of how such complicating factors should be reckoned into the analysis.