Collusion with Public and Private Ownership and Innovation

Posted by Social Science Research Network

Collusion with Public and Private Ownership and Innovation

By Arnoud W. A. Boot & Vladimir N. Vladimirov (University of Amsterdam)

Abstract:      We argue that public ownership gives firms the option to collude and engage in rent seeking on existing technologies. This option can enhance firm value. However, it also reduces the commitment to developing new technologies. We show that the option to collude is valuable when the expected profitability of innovation is either very low or very high. For intermediate values, private ownership dominates. By comparing antitrust lawsuits against firms that go public to firms that withdraw their IPO filings for arguably exogenous reasons, we offer evidence for our result that public firms are more likely to engage in collusion.

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