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Incentive and welfare implications of cross-holdings in oligopoly

Author

Listed:
  • Hongkun Ma

    (Sun Yat-sen University
    Zhuhai Huafa Investment Holdings Co. Ltd.)

  • Cheng-Zhong Qin

    (University of California)

  • Chenhang Zeng

    (Zhongnan University of Economics and Law)

Abstract

Competitive implications of cross-holdings have been extensively analyzed in the literature. Incentives for engaging cross-holdings and welfare effects were however rarely studied. Although a similar logic as with the merger paradox holds for Cournot oligopolies with homogeneous products and symmetric technologies, we show that there are profit incentives for firms to engage cross-holdings with asymmetric technologies. Furthermore, we show that social welfare could be enhanced with cross-holdings even though the market becomes more concentrated. We also discuss the robustness of both the submodularity of the Cournot model with respect to the presence of cross-holdings and our results with respect to product differentiation.

Suggested Citation

  • Hongkun Ma & Cheng-Zhong Qin & Chenhang Zeng, 2024. "Incentive and welfare implications of cross-holdings in oligopoly," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(4), pages 975-997, June.
    • Handle: RePEc:spr:joecth:v:77:y:2024:i:4:d:10.1007_s00199-021-01398-x
    DOI: 10.1007/s00199-021-01398-x
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    Keywords

    Cross-holding; Joint profits; Oligopoly; Cournot equilibrium; Submodularity;
    All these keywords.

    JEL classification:

    • 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

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