Partial cross ownership and tacit collusion

Abstract

We examine the effects that passive investments in rival firms have on the incentives of firms to engage in tacit collusion. In general, these incentives depend in a complex way on the entire partial cross ownership (PCO) structure in the industry. We establish necessary and sufficient conditions for PCO arrangements to facilitate tacit collusion and also examine how tacit collusion is affected when firms' controllers make direct passive investments in rival firms.

Testing for Competitive Effects of Common Ownership

“…Both the HHI and the MHHI may be interpreted as industry average markups under Cournot competition, as we discuss further below. Other theoretical contributions include Rotemberg (1984); Gordon (1990); Gilo (2000); O'Brien and Salop (2001) ;Gilo, Moshe, and Spiegel (2006); Azar (2011).…”

Cross Shareholding and Initiative Effects

“…Some researchers examine partial and cross shareholding as a means of resolving the hold-up problem (Riorden, 1990;Dasgupta and Tao, 2000). Other researchers have investigated the relationship between cross shareholding and product market competition (Reynolds and Snapp, 1986;Farrel and Shapiro, 1990;Flath, 1991); (Malueg, 1992;Hansen and Lott, 1995;Gilo et al, 2006;Mathews, 2006); (Clayton and Jorgenson, 2005). All of these studies focus on cash flow rights, while another line of research pays more attention to control rights (Berglof and Perotti, 1994;Osano, 1996).…”

The strategic value of partial vertical integration

“…The seminal articles of Bresnahan and Salop (1986), Reynolds and Snapp (1986) and O'Brien and Salop (2000) provide a formal foundation for the antitrust control of partial acquisitions between rival firms since they can entail a dampening of competition. More recently, Gilo et al (2006) show the collusive effects of partial cross ownership. Foros et al (2011) find that rival firms can prefer partial acquisitions to full mergers, which leads to softer competition.…”