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Vertical Cross-Shareholding Theory and Experimental Evidence

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Author Info
Werner Güth ()
Nikos Nikiforakis
Hans-Theo Normann

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Abstract

This paper analyses vertical cross-shareholding, that is, the mutual holding of a minority of shares between vertically related firms. We investigate the conditions under which cross-shareholding improves efficiency. First, we explore the issue in a game-theoretic model and find that cross-shareholding is sufficient to obtain the first-best solution. We then proceed by testing these predictions experimentally. Our findings are that the theory predicts the sellers' decisions accurately and to some extent the price of the buyers. Cross-shareholding appears to occur more frequently than predicted and it enhances efficiency even where not predicted.

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Publisher Info
Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-11.

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Length: 30 pages
Date of creation: May 2005
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Handle: RePEc:esi:discus:2005-11

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  1. Werner Güth & Manfred Stadler, 2007. "Path dependence without denying deliberation— a continuous transition model connecting teleology and evolution," Journal of Evolutionary Economics, Springer, vol. 17(1), pages 45-52, February. [Downloadable!] (restricted)
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This page was last updated on 2009-11-25.

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