Threatening to buy : private equity buyouts and antitrust policy

Private equity firms (PE firms) have become common owners of established firms in concentrated markets. We show that the threat of a PE acquisition can trigger incumbent mergers in an otherwise mergerstable industry. This can help antitrust authorities maximize consumer surplus because previously privately unprofitable - but consumer surplus-enhancing - mergers now take place. We thus predict that merger waves among incumbents should follow the development of a local PE industry.