Passive forward ownership and upstream collusion
13 Pages Posted: 16 Sep 2021
Date Written: September 15, 2021
We examine the effects of passive forward ownership on the sustainability of upstream collusion. We consider a homogeneous Cournot duopoly with competing vertical chains. In one chain, the upstream firm has non-controlling partial ownership over its downstream exclusive client. We find that passive forward ownership hinders upstream collusion; the higher is the degree of ownership, the more difficult it is for upstream collusion to be sustained. The driving force behind our result is that a higher degree of passive forward ownership decreases collusive profits of the unintegrated upstream firm.
Keywords: Tacit collusion, Passive forward ownership, Vertical chains, Cournot competition
JEL Classification: D43, L13, L40, L81
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