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Partial ownership, control, and investment in vertical relationships

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  • Nadav Levy

Abstract

This paper examines whether partial ownership of a trading partner can alleviate hold‐up problems and promote relationship‐specific investments. Unlike a silent financial interest, which does not give the owner control over the partner and promotes both parties' investments, partial control over the partner could reduce the partner's investment and lead the owner to overinvest, thereby decreasing the joint surplus. The inability of the owner to restrain himself from abusing his control limits the effectiveness of partial ownership. An analysis of the control environment should be part of the empirical analysis of partial ownership and the assessment of its potential benefits by competition authorities.

Suggested Citation

  • Nadav Levy, 2024. "Partial ownership, control, and investment in vertical relationships," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(1), pages 247-266, January.
    • Handle: RePEc:bla:jemstr:v:33:y:2024:i:1:p:247-266
    DOI: 10.1111/jems.12559
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    References listed on IDEAS

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