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

See all articles by David Gilo

David Gilo

Tel Aviv University - Buchmann Faculty of Law

Date Written: February 1997

Abstract

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

Gilo, David, Partial Ownership as a Strategic Variable to Facilitate Tacit Collusion (February 1997). John M. Olin Program in Law, Economics, and Business, Harvard Law School, Discussion Paper No. 170. Available at SSRN: https://ssrn.com/abstract=10397

David Gilo (Contact Author)

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
+972-3-6406299 (Phone)

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