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Cross-ownership and managerial delegation under vertical product differentiation

Author

Listed:
  • Xingtang Wang

    (Guangdong University of Foreign Studies)

  • Leonard F. S. Wang

    (Zhongnan University of Economics and Law)

  • Huizhong Liu

    (Zhongnan University of Economics and Law)

Abstract

We construct a vertical product differentiation duopoly model incorporating managerial delegation and cross-ownership. By exploring the interplay of these factors, we find a U-shaped relationship between endogenous managerial delegation coefficients and cross-ownership. The difference in managerial delegation coefficients between the two firms decreases as the cross-ownership proportion increases. In an ownership structure involving cross-ownership of firms producing different quality products, managerial delegation improves firms’ profits while reducing consumer surplus and social welfare in a vertical product differentiation market. Moreover, cross-ownership intensifies the positive impact of managerial delegation on joint profits and the negative effects on consumer surplus and social welfare. Consequently, regulating cross-ownership among firms in vertically differentiated product markets is an important policy issue for competition law.

Suggested Citation

  • Xingtang Wang & Leonard F. S. Wang & Huizhong Liu, 2024. "Cross-ownership and managerial delegation under vertical product differentiation," Journal of Economics, Springer, vol. 143(2), pages 161-181, October.
    • Handle: RePEc:kap:jeczfn:v:143:y:2024:i:2:d:10.1007_s00712-024-00871-0
    DOI: 10.1007/s00712-024-00871-0
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    More about this item

    Keywords

    Cross-ownership; Managerial delegation; Vertical product differentiation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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