Downstream Cross-Holdings and Upstream Collusion

13 Pages Posted: 13 Jul 2023

See all articles by Konstantinos Charistos

Konstantinos Charistos

University of Macedonia - Department of Economics

Ioannis Pinopoulos

National and Kapodistrian University of Athens - Department of Economics

Panagiotis Skartados

Department of Economics, University of Crete

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Abstract

We investigate the effects of downstream cross-holdings on the sustainability of upstream collusion. We consider two competing vertical chains, downstream Cournot and homogeneous final goods. Besides softening competition in the downstream market, cross-holdings can also have the pro-competitive effect of reducing upstream collusion. Under a general demand, downstream cross-holdings: (i) always decrease upstream collusive profits, (ii) decrease punishment profits if demand has a constant elasticity of slope, (iii) have an ambiguous effect on the profits from deviation. Under a linear demand, downstream cross-holdings weaken upstream collusion. This remains robust for several demand functions that exhibit constant elasticity of slope.

Keywords: cross-holdings, tacit collusion, competing vertical chains

Suggested Citation

Charistos, Konstantinos and Pinopoulos, Ioannis and Skartados, Panagiotis, Downstream Cross-Holdings and Upstream Collusion. Available at SSRN: https://ssrn.com/abstract=4508968 or http://dx.doi.org/10.2139/ssrn.4508968

Konstantinos Charistos (Contact Author)

University of Macedonia - Department of Economics ( email )

Thessaloniki, 54006
Greece

HOME PAGE: http://www.uom.gr

Ioannis Pinopoulos

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Athens, GR- 10559
Greece

Panagiotis Skartados

Department of Economics, University of Crete ( email )

University Campus at Gallos
Rethymno, Crete
Greece

HOME PAGE: http://sites.google.com/view/pskartados

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