Input price discrimination and horizontal shareholding

Antitrust laws in many countries prohibit the setting of differential prices across buyers who compete against each other. In this paper, we consider a setting in which a downstream manufacturer has non-controlling interest in its rival and both buy input from an upstream monopolist. Under price discrimination, a lower price is charged to the manufacturer that holds the rival’s shares, which mitigates the anticompetitive effect of horizontal shareholding. When the ownership structure is endogenized, we find that, relative to uniform pricing, price discrimination discourages the formation of horizontal shareholding which is also socially desirable. The analysis is extended to the case of cross shareholding in which each manufacturer holds shares of its rival and to downstream price competition.