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Strategic interlocking directorates

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  • Battaggion, Maria Rosa
  • Cerasi, Vittoria

Abstract

This paper analyzes the choice to interlock as a strategic decision. The choice to invite an executive from a rival company to sit on the board is analyzed within a duopoly where firms with hidden marginal costs of production compete in the product market. Interlocking directorates may emerge as an equilibrium outcome whenever firms gain by disclosing information on their private costs. The degree of efficiency of the companies together with the type of competition, either quantity or price, affects the occurrence and the form of the interlocking. The equilibrium outcome can take different forms: unilateral, bilateral interlocking or no interlocking. We also derive the welfare implications of the different equilibria and show that interlocking directorates are detrimental for the consumers even without assuming collusive behavior in the market. In addition we extend the analysis to three firms to explore the dynamic of networks formation.

Suggested Citation

  • Battaggion, Maria Rosa & Cerasi, Vittoria, 2020. "Strategic interlocking directorates," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 85-101.
    • Handle: RePEc:eee:jeborg:v:178:y:2020:i:c:p:85-101
    DOI: 10.1016/j.jebo.2020.07.015
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    Cited by:

    1. Maria Rosa Battaggion & Vittoria Cerasi & Gülen Karakoç, 2023. "On the optimality of information sharing between integrated and vertically separated competitors," Southern Economic Journal, John Wiley & Sons, vol. 89(4), pages 1168-1195, April.
    2. Maria Rosa Battaggion & Vittoria Cerasi & Gulen Karakoc, 2021. "The Value of Interlocking Directorates in Vertical Contracting," Working Papers 480, University of Milano-Bicocca, Department of Economics, revised Sep 2021.
    3. Maria Rosa Battaggion & Vittoria Cerasi, 2021. "It takes two to tango: Interlockings and Partial Equity Ownership," Working Papers 475, University of Milano-Bicocca, Department of Economics, revised Jul 2021.

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    More about this item

    Keywords

    Interlocking directorates; Boards; Information; Oligopoly;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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