A Model of Endogenous Cross-Holdings in Oligopoly∗
نویسندگان
چکیده
A network approach is proposed to analyze endogenous cross-holdings and their competitive implications. The approach is motivated by the bilateral arrangement of passive ownership held by Microsoft in Apple in 1997. For a model of Cournot oligopoly with a homogeneous product, it is shown that (i) there is a unique “pairwise stable” cross-holding structure, in which firms hold the maximum allowable amount of passive ownership in rivals when there are two firms; (ii) there is a wide range of pairwise stable cross-holding structures when there are three firms; and (iii) with four or more firms, pairwise stability implies that none of the firms holds any passive ownership in rivals. An implication of these results is that bilateral formation of cross-holdings by horizontal firms yields more collusive outcomes when the industry is more concentrated. JEL classification: C72; G0; L1
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