Even though cross ownership raises industry profits, we demonstrate that it is prone to a commitment problem. Specifically, we show that producers in a Cournot duopoly have unilateral incentives to resell their minority share-holdings in the rival to outside investors, leading to an equilibrium with complete divestments. This feature challenges the stability of cross ownership configurations.
- 511 Economics
- Cross ownership
- Divestment incentives
Areas of Strength and Areas of High Potential (AoS and AoHP)
- AoS: Competition economics and service strategy - Quantitative consumer behaviour and competition economics