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Strategic capacity investment with common ownership or cross holdings

Author

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  • Richard Ruble
  • Dimitrios Zormpas

Abstract

We study how overlapping ownership affects the timing and size of capacity investments in duopoly. In addition to standard accommodation and delay strategies, internalization allows a leader to block follower entry. Follower timing and capacity reactions are less aggressive, making outcomes less competitive ex-post. Positional competition is more intense, and entry occurs earlier in equilibrium. Internalization raises a leader's incentive to delay follower entry rather than accommodate, and we show with an example that this strategic shift can benefit consumers.

Suggested Citation

  • Richard Ruble & Dimitrios Zormpas, 2022. "Strategic capacity investment with common ownership or cross holdings," Working Papers 2201, University of Crete, Department of Economics.
    • Handle: RePEc:crt:wpaper:2201
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    More about this item

    Keywords

    ownership; cross-ownership; dynamic competition; Stackelberg leadership; strategic capacity investment;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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