Advantageous Symmetric Cross-Ownership

20 Pages Posted: 6 Apr 2021

See all articles by Konstantinos G. Papadopoulos

Konstantinos G. Papadopoulos

School of Economics, Aristotle University of Thessaloniki

Date Written: April 1, 2021

Abstract

We model an industry where a subset of firms is interlinked via a reciprocal and symmetric share exchange agreement. A merger aiming at acquisition of market power can be reproduced by the same firms under a symmetric cross-ownership scheme. Both concentration and market power indices increase due to cross-ownership. Under linear demand, a non-controlling symmetric cross-ownership scheme is always advantageous to its members if at least 0.58 (1+n) firms in an n-firm industry participate. The threshold drops to (1+n)/2 for relatively low levels of cross-ownership. Cross-ownership schemes require fewer participants than mergers to be advantageous and can always be more profitable than mergers, unless a merger involves more than 88 per cent of industry firms.

Keywords: common ownership, cross-ownership, minority stakes, cartelization, merger.

JEL Classification: L41,L11, L13, D43

Suggested Citation

Papadopoulos, Konstantinos G., Advantageous Symmetric Cross-Ownership (April 1, 2021). Available at SSRN: https://ssrn.com/abstract=3813415 or http://dx.doi.org/10.2139/ssrn.3813415

Konstantinos G. Papadopoulos (Contact Author)

School of Economics, Aristotle University of Thessaloniki ( email )

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Greece
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