Partial Ownership as a Strategic Variable to Facilitate Tacit Collusion
John M. Olin Program in Law, Economics, and Business, Harvard Law School, Discussion Paper No. 170
Posted: 21 Apr 1997
Date Written: February 1997
This paper investigates partial ownership as a strategic device to facilitate tacit collusion in a repeated game with and without cost asymmetries. Once partial ownership is acknowledged as a decision variable and not as exogenously given, it is unambiguously shown that it improves the prospects of sustaining tacit collusion. Furthermore, when it is a firm's controller which invests in this firm's competitor, the controller can further facilitate tacit collusion by diluting its stake in the firm it controls. Finally, a firm which is more inclined to price cut can commit to be less aggressive by passively investing in its competitor.
JEL Classification: L41, L13, K21
Suggested Citation: Suggested Citation