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Cross Holding and Imperfect Product Markets

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  • Matthew J. Clayton
  • Bjorn N. Jorgensen

Abstract

We consider a setting in which two firms first choose equity positions in each others stock (cross holdings) and then compete in an imperfect product market. We demonstrate that cross holdings lead to higher firm profits and higher consumer surplus when the competitors’ products are complements. We find that cross holdings lead to lower firm profits and higher consumer surplus when the products are substitutes. This finding is in contrast to the existing literature which establishes that cross holdings leads

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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 99-058.

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Date of creation: Sep 1999
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Handle: RePEc:fth:nystfi:99-058

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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/
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  1. Reynolds, Robert J. & Snapp, Bruce R., 1986. "The competitive effects of partial equity interests and joint ventures," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 141-153, June.
  2. Reitman, David, 1993. "Stock Options and the Strategic Use of Managerial Incentives," American Economic Review, American Economic Association, vol. 83(3), pages 513-24, June.
  3. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
  4. Diamond, Douglas W. & Verrecchia, Robert E., 1987. "Constraints on short-selling and asset price adjustment to private information," Journal of Financial Economics, Elsevier, vol. 18(2), pages 277-311, June.
  5. Showalter, Dean M, 1995. "Oligopoly and Financial Structure: Comment," American Economic Review, American Economic Association, vol. 85(3), pages 647-53, June.
  6. Hansen, Robert G & Lott, John R, Jr, 1995. "Profiting from Induced Changes in Competitors' Market Values: The Case of Entry and Entry Deterrence," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 261-76, September.
  7. Flath, David, 1991. "When is it rational for firms to acquire silent interests in rivals?," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 573-583, December.
  8. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
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Cited by:
  1. Feenstra, Robert C. & Huang, Deng-Shing & Hamilton, Gary G., 2003. "A market-power based model of business groups," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 459-485, August.

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