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Advantageous symmetric cross-ownership and mergers

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  • Papadopoulos, Konstantinos G.

Abstract

We model an industry where a subset of firms is interlinked via a reciprocal and symmetric share exchange agreement. Under quantity competition, a merger aiming at acquisition of market power can be reproduced by the same firms under a symmetric cross-ownership scheme. Under linear demand, a non-controlling symmetric cross-ownership scheme is always advantageous to its members if at least (2−2)(1+n) firms in an n-firm industry participate. The threshold drops to (1+n)/2 for relatively low levels of cross-ownership. Cross-ownership schemes require fewer participants than mergers to be advantageous and can be more profitable than equal size mergers. Unlike mergers, a unique stable scheme exists.

Suggested Citation

  • Papadopoulos, Konstantinos G., 2022. "Advantageous symmetric cross-ownership and mergers," Economics Letters, Elsevier, vol. 220(C).
    • Handle: RePEc:eee:ecolet:v:220:y:2022:i:c:s0165176522003500
    DOI: 10.1016/j.econlet.2022.110876
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    References listed on IDEAS

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    Cited by:

    1. Wang, Shuangjin & Zhang, Xiaoqian & Cebula, Richard J. & Foley, Maggie, 2024. "Cross-shareholding, Managerial capabilities, and Strategic risk-taking in enterprises: A game or a win-win?," Finance Research Letters, Elsevier, vol. 62(PB).

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    More about this item

    Keywords

    Common ownership; Cross-ownership; Minority stakes; Cartel; Merger;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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