Matthew J. Clayton (Rutgers Business School Newark and New Brunswick, Rutgers University) Bjorn N. Jorgensen (Graduate School of Business, Columbia University)
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We analyze a two period setting where firms first choose equity positions in each other and second engage in operating activities that cause externalities. Firms facing positive externalities optimally choose long equity positions to increase their profits. Firms facing negative externalities encounter a prisoners' dilemma, where each firm optimally chooses short positions in the first period, committing to a more aggressive operating stance that results in lower profits. In contrast to the prior literature, regulation restricting cross holdings reduces consumer surplus and economic welfare when the number of firms is fixed. However, such regulation can increase entry, improving net welfare.
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Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 78 (2005) Issue (Month): 4 (July) Pages: 1505-1522 Download reference. The following formats are available: HTML
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