Abstract:
Partial ownership can be used as a screening device by a foreign firm which wants to merge with a local firm whose productivity is private information. As partial ownership is confined to sharing future merger profits, it cannot achieve true revelation in all cases but improves expected merger gains also in an equilibrium which is not fully separating. The example of a Cournot target market in which a horizontal merger reduces marginal cost demonstrates the general results. If cost reduction is exogenous, a separating equilibrium exists. If cost reduction is endogenously determined by investment of the merged firm, equilibria exist which do not fully separate but imply partial ownership.
