Overlapping Ownership, R&D Spillovers, and Antitrust Policy

131 Pages Posted: 27 Sep 2016 Last revised: 22 Oct 2017

See all articles by Angel Luis Lopez

Angel Luis Lopez

Autonomous University of Barcelona; IESE Business School

Xavier Vives

University of Navarra - IESE Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: October 1, 2017

Abstract

This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with overlapping ownership. We show that overlapping ownership leads to internalization of rivals’ profits by firms and find that, for demand not too convex, increases in overlapping ownership increase (decrease) R&D and output for high (low) enough spillovers while it increases R&D but decreases output for intermediate levels of spillovers. There is scope for overlapping ownership to improve welfare provided that spillovers are sufficiently large. The socially optimal degree of overlapping ownership increases with the number of firms, with the elasticity of demand and of the innovation function, and with the extent of spillover effects. In terms of consumer surplus standard, the desirability of overlapping ownership is greatly reduced even under low market concentration. When R&D has commitment value and spillovers are high the optimal extent of overlapping ownership is higher. The results obtained are robust in the context of a Bertrand oligopoly model with product differentiation.

Keywords: competition policy; partial merger; collusion; innovation; minority shareholdings; common ownership; cross-ownership

JEL Classification: D43, L13, O32

Suggested Citation

Lopez, Angel Luis and Vives, Xavier, Overlapping Ownership, R&D Spillovers, and Antitrust Policy (October 1, 2017). IESE Business School Working Paper No. Working Paper WP-1140, Available at SSRN: https://ssrn.com/abstract=2844112 or http://dx.doi.org/10.2139/ssrn.2844112

Angel Luis Lopez

Autonomous University of Barcelona ( email )

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HOME PAGE: http://angelluislopez.net

IESE Business School

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HOME PAGE: http://www.angelluislopez.net

Xavier Vives (Contact Author)

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

HOME PAGE: http://wwwapp.iese.edu/faculty/facultyDetail.asp?lang=en&prof=xv

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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