Partial Cross Ownership and Tacit Collusion
34 Pages Posted: 25 Aug 2003
This paper shows how competing firms can facilitate tacit collusion by making passive investments in rivals. In general, the incentives of firms to collude depend in a complex way on the whole set of partial cross ownership (PCO) in the industry. We establish necessary and sufficient conditions for PCO arrangements to facilitate tacit collusion and also examine how tacit collusion is affected when firms' controllers make direct passive investments in rival firms.
Keywords: partial cross ownership, repeated Bertrand oligopoly, tacit collusion, controlling shareholder, cost asymmetries
JEL Classification: D43, L41
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