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Losses from cross-ownership due to risk aversion

Author

Listed:
  • Gökhan Can

    (Università Cattolica del Sacro Cuore)

Abstract

This study analyzes a Cournot duopoly with two risk-averse firms facing demand uncertainty. Each firm passively holds a minority stake in the other's profits, introducing cross-ownership into a mean-variance framework. Cross-ownership reduces output and raises the expected price-cost margin. Its effect on expected total profits depends on the degree of risk aversion: with low risk aversion, expected total profits follow an inverted U-shape as cross-ownership increases; with high risk aversion, expected total profits decline. The reduction in expected total profits occurs when the rise in the expected price-cost margin fails to offset the output decline.

Suggested Citation

  • Gökhan Can, 2025. "Losses from cross-ownership due to risk aversion," Economics Bulletin, AccessEcon, vol. 45(3), pages 1451-1456.
    • Handle: RePEc:ebl:ecbull:eb-25-00199
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    References listed on IDEAS

    as
    1. Arijit Mukherjee, 2023. "Losses from cross-holdings in a duopoly with convex cost and strategic input price determination," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(1), pages 81-91, April.
    2. Jie Shuai & Mengyuan Xia & Chenhang Zeng, 2023. "Upstream market structure and downstream partial ownership," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 22-47, January.
    3. Domenico Buccella & Luciano Fanti & Luca Gori, 2025. "Cross-ownership in network industries: when less competition implies less profits or more social welfare," Journal of Economics, Springer, vol. 144(3), pages 203-230, April.
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    More about this item

    Keywords

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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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