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Cross-shareholding in the Japanese Banking Sector, Tacit Collusion, and Market Power

26 Pages Posted: 19 Aug 2009  

Umed Temurshoev

Loyola Andalucia University

Stanislav Stakhovych

affiliation not provided to SSRN

Date Written: August 19, 2009

Abstract

This paper modifies the well-known conjectural variation model of Clarke and Davis (1982) by taking into account partial cross ownership (PCO) links among firms. It is shown that, unlike in the no PCO case, the link between firms’ price-cost margins and the degree of tacit collusion is nonlinear in the presence of PCO. Thus, ignoring PCO in their presence would most likely lead to biased results due to model misspecification. The model is applied to the Japanese banking sector in 2003. We find that Japanese banks compete in a modest collusive environment, while neglecting PCO gives a different result indicating a Cournot oligopoly. It is further shown that banks with passive holdings in rivals exert a strictly larger market power than those without any PCO. In particular, city banks with many shareholdings are found to exercise a much larger market power than regional banks with none or few stockholdings.

Keywords: Partial cross ownership, price-cost margins, tacit collusion, market power

JEL Classification: D43, L41, L89

Suggested Citation

Temurshoev, Umed and Stakhovych, Stanislav, Cross-shareholding in the Japanese Banking Sector, Tacit Collusion, and Market Power (August 19, 2009). Available at SSRN: https://ssrn.com/abstract=1457614 or http://dx.doi.org/10.2139/ssrn.1457614

Umed Temurshoev (Contact Author)

Loyola Andalucia University ( email )

Escritor Castilla Aguayo no. 4
Cordoba, CORDOBA 14004
Spain

Stanislav Stakhovych

affiliation not provided to SSRN

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