Common ownership and entry with dominant firms and a competitive fringe

This note studies common ownership in an industry with a finite set of dominant quantity-setting firms and an endogenous competitive fringe with free entry under monopolistic competition. Common ownership among dominant firms is summarized by a reduced-form profit-internalization parameter that captures the extent to which managers internalize rivals' profits. Stronger internalization softens competition, lowers dominant-firm output, and induces additional entry of fringe varieties. Embedding this mechanism in a general equilibrium economy with separate workers and owners, where only owners receive firm profits, delivers a simple welfare benchmark. Under free entry, constant-elasticity-of-substitution demand, and Cobb-Douglas expenditure shares, stronger internalization raises the differentiated-goods price index and reduces owners' nominal income, implying that both groups' indirect utilities fall. Consequently, policies that reduce within-industry profit internalization are Pareto improving in this benchmark.