Rents, mergers, and acquisitions in the automotive and beer industries
Although reform in China has eliminated many of the rents that characterized the Maoist economy and has created a market environment in which interﬁrm competition is likely to dissipate remaining rents, evidence of rent-seeking behavior in the form of local protectionism continues to surface.1 This chapter argues that even though ﬁrms continue to seek rents and local governments continue to interfere with the market in order to generate rents for local ﬁrms, reform has signiﬁcantly altered the logic of rent-seeking. In the past, the correspondence between local ﬁrms and local governments was relatively straightforward. Local government often owned or had a controlling interest in local ﬁrms, thus giving them a direct ﬁnancial interest in maximizing local ﬁrms’ proﬁts. During the mid-1990s, however, mergers and acquisitions by ﬁrms seeking to expand into new markets rendered the correspondence between local governments and “local” ﬁrms more complex. Mergers and acquisitions allowed outsiders to jump over informal local trade barriers and “buy” into the political relationships that putatively wed local governments to local ﬁrms and hence to the ability of local governments to generate rents. In the process, the distinction between “outsiders” and “locals” obviously blurred. As multiple ﬁrms established themselves within speciﬁc market segments, the one-to-one correspondence between ﬁrms and governments also increasingly became a thing of the past.