Incentive and welfare implications of cross-holdings in oligopoly

Competitive implications of cross-holdings have been extensively analyzed in the literature. Incentives for engaging cross-holdings and welfare effects were however rarely studied. Although a similar logic as with the merger paradox holds for Cournot oligopolies with homogeneous products and symmetr...

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Bibliographic Details
Published in:Economic theory Vol. 77; no. 4; pp. 975 - 997
Main Authors: Ma, Hongkun, Qin, Cheng-Zhong, Zeng, Chenhang
Format: Journal Article
Language:English
Published: Berlin/Heidelberg Springer Berlin Heidelberg 01.06.2024
Springer
Springer Nature B.V
Subjects:
Acquisitions & mergers
Competition
Computer industry
Computer software industry
Differentiation
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Incentives
Microeconomics
Oligopolies
Oligopoly
Preferred stock
Product differentiation
Profits
Public Finance
Research Article
Robustness
Social and Behav. Sciences
Social sciences
Social welfare
United States
China
Joint profits
D43
Cross-holding
Cournot equilibrium
Submodularity
Oligopoly
L13
ISSN:0938-2259, 1432-0479
Online Access:Get full text
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Summary:Competitive implications of cross-holdings have been extensively analyzed in the literature. Incentives for engaging cross-holdings and welfare effects were however rarely studied. Although a similar logic as with the merger paradox holds for Cournot oligopolies with homogeneous products and symmetric technologies, we show that there are profit incentives for firms to engage cross-holdings with asymmetric technologies. Furthermore, we show that social welfare could be enhanced with cross-holdings even though the market becomes more concentrated. We also discuss the robustness of both the submodularity of the Cournot model with respect to the presence of cross-holdings and our results with respect to product differentiation.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:0938-2259
1432-0479
DOI:10.1007/s00199-021-01398-x