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Cross-ownership and stability in a Cournot duopoly

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  • Fanti, Luciano
  • Gori, Luca

Abstract

This paper analyses the dynamics of a Cournot duopoly under cross-ownership participation when players have heterogeneous, i.e. bounded rational and naïve, expectations. We find that when the shareholder that owns firm also holds a percentage of firm , the parametric stability region of the unique Cournot-Nash equilibrium is larger than when every firm is owned by a unique shareholder, and an increase in the fraction of shares that the shareholder that owns firm has in firm tends to stabilise the market equilibrium. Moreover, when products are (horizontally) differentiated, a rise in the fraction of shares of firm held by the shareholder that owns firm acts as an economic (de)stabiliser when products of variety and are (complements) substitutes between each other. The policy implication is that, despite on the one hand, cross-ownership acts as an anti-competitive device that indeed tends to reduce social welfare with the corresponding anti-trust consequences, on the other hand, it acts as an economic stabiliser (except when products are complements).

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34574.

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Date of creation: 07 Nov 2011
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Handle: RePEc:pra:mprapa:34574

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Keywords: Bifurcation; Cournot; Cross-ownership; Duopoly;

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  1. Zhang, Jixiang & Da, Qingli & Wang, Yanhua, 2007. "Analysis of nonlinear duopoly game with heterogeneous players," Economic Modelling, Elsevier, Elsevier, vol. 24(1), pages 138-148, January.
  2. Fanti, Luciano & Gori, Luca, 2011. "The dynamics of a differentiated duopoly with quantity competition," MPRA Paper 33477, University Library of Munich, Germany.
  3. repec:ebl:ecbull:v:15:y:2007:i:6:p:1-8 is not listed on IDEAS
  4. Trivieri, Francesco, 2007. "Does cross-ownership affect competition?: Evidence from the Italian banking industry," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 17(1), pages 79-101, February.
  5. Agiza, H.N. & Hegazi, A.S. & Elsadany, A.A., 2002. "Complex dynamics and synchronization of a duopoly game with bounded rationality," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 58(2), pages 133-146.
  6. Macho, I. & Verdier, T., 1989. "Strategic Managerial Incentives and Cross Ownership Structure: A Note," DELTA Working Papers, DELTA (Ecole normale supérieure) 89-02, DELTA (Ecole normale supérieure).
  7. Bárcena-Ruiz, Juan Carlos & Campo, María Luz, 2012. "Partial cross-ownership and strategic environmental policy," Resource and Energy Economics, Elsevier, Elsevier, vol. 34(2), pages 198-210.
  8. Rupayan Pal, 2010. "How Much Should You Own? Cross-ownership and Privatization," Working Papers id:2810, eSocialSciences.
  9. Bárcena Ruiz, Juan Carlos & Olaizola Ortega, María Norma, 2004. "Cost-Saving production technologies and strategic delegation," IKERLANAK, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I 2004-12, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  10. Rupayan Pal, 2012. "How much should you own? Cross-ownership and privatization," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-008, Indira Gandhi Institute of Development Research, Mumbai, India.
  11. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
  12. Alley, Wilson A, 1997. "Partial Ownership Arrangements and Collusion in the Automobile Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 45(2), pages 191-205, June.
  13. Agiza, H.N. & Elsadany, A.A., 2003. "Nonlinear dynamics in the Cournot duopoly game with heterogeneous players," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 320(C), pages 512-524.
  14. Tramontana, Fabio, 2010. "Heterogeneous duopoly with isoelastic demand function," Economic Modelling, Elsevier, Elsevier, vol. 27(1), pages 350-357, January.
  15. Eirik S. Amundsen & Lars Bergman, 2002. "Will Cross-Ownership Re-Establish Market Power in the Nordic Power Market?," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 2), pages 73-95.
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