Advantageous Symmetric Cross-Ownership
20 Pages Posted: 6 Apr 2021
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: Suggested Citation
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- Citations
- Citation Indexes: 1
- Usage
- Abstract Views: 822
- Downloads: 119
- Captures
- Readers: 3