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Overlapping Ownership, R&D Spillovers, and Antitrust Policy

137 Pages Posted: 9 Nov 2017 Last revised: 17 Nov 2017

Ángel L. López

Autonomous University of Barcelona

Xavier Vives

University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); 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

López, Ángel L. and Vives, Xavier, Overlapping Ownership, R&D Spillovers, and Antitrust Policy (October 1, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 538/2017. Available at SSRN: https://ssrn.com/abstract=3057944

Ángel L. López (Contact Author)

Autonomous University of Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

Xavier Vives

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

Universitat Pompeu Fabra (UPF) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
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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