Overlapping Ownership, R&D Spillovers, and Antitrust Policy

Abstract

This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with overlapping ownership. We show that overlapping ownership leads to internalization of rivals. profits by firms and find that, for demand not too convex, increases in overlapping ownership increase (decrease) R&D and output for high (low) enough spillovers while it increases R&D but decreases output for intermediate levels of spillovers. There is scope for overlapping ownership to improve welfare provided that spillovers are sufficiently large. The socially optimal degree of overlapping ownership increases with the number of firms, with the elasticity of demand and of the innovation function, and with the extent of spillover effects. In terms of consumer surplus standard, the desirability of overlapping ownership is greatly reduced even under low market concentration. When R&D has commitment value and spillovers are high the optimal extent of overlapping ownership is higher. The results obtained are robust in the context of a Bertrand oligopoly model with product differentiation. JEL-Codes: D430, L130, O320. We thank Ramon Faulí-Oller for his insightful initial contributions and to the editor and three anonymous referees for very useful suggestions. For helpful comments we thank Isabel Busom, Luis Cabral,

Common Ownership and Corporate Social Responsibility

“…The same group of authors also document that a higher level of common ownership improves firms' incentives to innovate (Antón, Ederer, Gine and Schmalz, 2018b). Their evidence confirms the theoretical predictions in López and Vives (2019). Eldar, Grennan and Waldock (2019) document the bright side of common ownership as well and show that startups benefit from investors that hold stakes in competitors.…”

“…In this section, we present a simple model and derive a firm's optimal CSR policy in the presence of common ownership. Our model builds on the ones in Planer-Friedrich and Sahm (2019) and López and Vives (2019). Throughout the model, we assume that there are two firms producing homogeneous goods and engage in Cournot competition.…”

Overlapping ownership, endogenous quality, and welfare

“…This internalization can naturally lessen product market competition since it reduces the incentive of …rms with ownership links to compete aggressively, leading (i) to higher product prices and lower output levels (Bresnahan and Salop, 1986;Reynolds and Snapp, 1986;Flath, 1992;Dietzenbacher, Smid and Volkerink, 2000;Shelegia and Spiegel, 2012;Brito, Ribeiro and Vasconcelos, 2019a); 1 and (ii) to a lower likelihood of entry (Newham, Seldeslachts and Banal-Estanol, 2018). However, this internalization can also have a bright side by (i) promoting costreducing investments (Shelegia and Spiegel, 2015;Antón et al, 2018;López and Vives, 2019);…”

Merger Review for Markets with Buyer Power

“…Motta and Tarantino (2017) show that in a Bertrand oligopoly with differentiated products, absent efficiency gains, a merger lowers total output and as a result lowers total investment in cost reduction. López and Vives (2016) focus on the effect of a symmetric increase in cross-ownership in a symmetric Cournot model with R&D spillovers. 14 They show that an increase in cross-ownership increases cost-reducing investment for high levels of R&D spillovers but decreases investment for low levels of R&D spillovers.…”

“…A related empirical literature is also grounded in models of Nash bargaining, includingCrawford and Yurukoglu (2012),Gowrisankaran et al (2015), and Collard-Wexler et al (forthcoming).13 O'Brien and Shaffer (2005) consider mergers with multi-product suppliers in a complete information setup with Nash bargaining.14Nocke and Whinston (2010) andMermelstein et al (2015) provide models of sequential mergers in the Cournot setup.15 In the model ofLópez and Vives (2016), when spillovers are high, the dominant effect of the decrease in competition associated with cross-ownership is to allow investing firms to better appropriate the benefits of their investments, increasing incentives for investment. However, when spillovers are low, the dominant effect of increased cross-ownership is a reduction in output and a corresponding reduction in incentives for cost-reducing investment.…”