Profiting from Induced Changes in Competitors' Market Values: The Case of Entry and Entry Deterrence

We resurrect an idea due to Hirshleifer [1971] by examining how one firm might profit by trading in the securities of other firms whose values are dependent upon the first firm's actions. We focus on the case of entry: can an entrant profit from trading in the securities of an incumbent firm, and how does the availability of such trading profits affect the economics of entry and entry deterrence? Our results have implications for antitrust policy, insider trading rules, the Williams Act, short selling rules, whether companies should be publicly or privately held, and the degree of diversification for companies.