Strategic capacity investment with overlapping ownership

53 Pages Posted: 29 Sep 2022 Last revised: 11 Apr 2023

See all articles by Richard R. Ruble

Richard R. Ruble

EM Lyon (Ecole de Management de Lyon)

Dimitrios Zormpas

University of Crete

Multiple version iconThere are 2 versions of this paper

Date Written: April 8, 2023

Abstract

Overlapping ownership has contrasting effects on capacity investments if duopoly firms invest sequentially. The follower’s reaction is less aggressive, but the leader acts more aggressively, either by choosing larger capacities or by shifting from accommodation to deterrence. If it shifts the leader’s strategy, internalization can increase consumer surplus and welfare. To endogenize leader and follower roles, we allow demand to fluctuate over time and show that, in a preemption equilibrium with internalization, leader entry occurs earlier but at a smaller scale.

Keywords: common ownership, cross-ownership, dynamic competition, Stackelberg leadership, strategic capacity investment

JEL Classification: D25, G32, L13

Suggested Citation

Ruble, Richard R. and Zormpas, Dimitrios, Strategic capacity investment with overlapping ownership (April 8, 2023). Available at SSRN: https://ssrn.com/abstract=4227723 or http://dx.doi.org/10.2139/ssrn.4227723

Richard R. Ruble

EM Lyon (Ecole de Management de Lyon) ( email )

23 Ave Guy de Collongue
Ecully, 69134
France

Dimitrios Zormpas (Contact Author)

University of Crete ( email )

Rethymno, RETHIMNO GR-74100
Greece

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