Do board connections between product market peers impede competition?

Authors: Radhakrishnan Gopalan, Renping Li, Alminas Zaldokas

Abstract

After a new direct board connection is formed to a product market peer, a firm’s gross margin increases by 0.8 p.p. Gross margin also rises by 0.4 p.p. after a connection is formed to a peer indirectly through a third intermediate firm. Using barcode-level data, we further show that new board connections are related to higher prices of consumer goods and a greater tendency to reduce head-on competition. Such board connections have positive profitability spillovers on the closest rivals, and the effects are stronger when the newly connected peers share corporate customers, have more similar business descriptions, or are closer geographically.