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The impact on market outcomes of the portfolio selection of large equity investors

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  • Moreno, Diego
  • Petrakis, Emmanuel

Abstract

We study the portfolio selection of large investors who own equity of the firms competing in a symmetric oligopoly. An investor’s objective is to maximize the value of its portfolio accounting for the impact of its interests on the managerial incentives. We show that in a stationary equilibrium the portfolios of large investors soften competition, increasing the price markup and profits.

Suggested Citation

  • Moreno, Diego & Petrakis, Emmanuel, 2022. "The impact on market outcomes of the portfolio selection of large equity investors," Economics Letters, Elsevier, vol. 212(C).
    • Handle: RePEc:eee:ecolet:v:212:y:2022:i:c:s0165176522000143
    DOI: 10.1016/j.econlet.2022.110296
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    References listed on IDEAS

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    1. José Azar & Martin C. Schmalz & Isabel Tecu, 2018. "Anticompetitive Effects of Common Ownership," Journal of Finance, American Finance Association, vol. 73(4), pages 1513-1565, August.
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    3. Sato, Susumu & Matsumura, Toshihiro, 2020. "Free entry under common ownership," Economics Letters, Elsevier, vol. 195(C).
    4. Moreno, Diego & Petrakis, Emmanuel, 2022. "The impact on market outcomes of the portfolio selection of large equity investors," Economics Letters, Elsevier, vol. 212(C).
    5. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
    6. Reynolds, Robert J. & Snapp, Bruce R., 1986. "The competitive effects of partial equity interests and joint ventures," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 141-153, June.
    7. Stenbacka, Rune & Van Moer, Geert, 2021. "Cross ownership and divestment incentives," Economics Letters, Elsevier, vol. 201(C).
    8. Reitman, David, 1994. "Partial Ownership Arrangements and the Potential for Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 313-322, September.
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    Citations

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    Cited by:

    1. Yi Liu & Toshihiro Matsumura, 2024. "Welfare effects of common ownership in an international duopoly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(2), pages 459-477, May.
    2. Xu, Lili & Zhang, Yidan & Matsumura, Toshihiro, 2022. "Cournot–Bertrand comparison under common ownership in a mixed oligopoly," MPRA Paper 114644, University Library of Munich, Germany.
    3. Hirose, Kosuke & Matsumura, Toshihiro, 2023. "Green transformation in oligopoly markets under common ownership," Energy Economics, Elsevier, vol. 126(C).
    4. Liu, Yi & Matsumura, Toshihiro, 2024. "Payoff interdependence and welfare-improving location diversification," MPRA Paper 120495, University Library of Munich, Germany.
    5. Lili Xu & Yidan Zhang & Toshihiro Matsumura, 2023. "Competition mode and common ownership in a mixed oligopoly," Manchester School, University of Manchester, vol. 91(4), pages 306-319, July.

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    More about this item

    Keywords

    Market power; Common ownership; Minority equity; Portfolio selection;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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