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Free entry under common ownership

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  • Sato, Susumu
  • Matsumura, Toshihiro

Abstract

This study investigates the equilibrium and welfare properties of free entry under common ownership. We formulate a model in which incumbents under common ownership choose whether to enter a new market. Using a circular-market model, we find that an increase in common ownership reduces entries, which may or may not improve welfare. Welfare has an inverted-U shaped relationship with the degree of common ownership, which implies that there is a strictly positive optimal degree of common ownership.

Suggested Citation

  • Sato, Susumu & Matsumura, Toshihiro, 2020. "Free entry under common ownership," Economics Letters, Elsevier, vol. 195(C).
    • Handle: RePEc:eee:ecolet:v:195:y:2020:i:c:s0165176520303013
    DOI: 10.1016/j.econlet.2020.109489
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    References listed on IDEAS

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    1. José Azar & Martin C. Schmalz & Isabel Tecu, 2018. "Anticompetitive Effects of Common Ownership," Journal of Finance, American Finance Association, vol. 73(4), pages 1513-1565, August.
    2. Gu, Yiquan & Wenzel, Tobias, 2009. "A note on the excess entry theorem in spatial models with elastic demand," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 567-571, September.
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    4. Martin C. Schmalz, 2018. "Common-Ownership Concentration and Corporate Conduct," CESifo Working Paper Series 6908, CESifo.
    5. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    6. Martin C. Schmalz, 2018. "Common-Ownership Concentration and Corporate Conduct," Annual Review of Financial Economics, Annual Reviews, vol. 10(1), pages 413-448, November.
    7. Ángel L. López & Xavier Vives, 2019. "Overlapping Ownership, R&D Spillovers, and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2394-2437.
    8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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    Citations

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    Cited by:

    1. Xu, Lili & Zhang, Yidan & Matsumura, Toshihiro, 2022. "Cournot–Bertrand comparison under common ownership in a mixed oligopoly," MPRA Paper 114644, University Library of Munich, Germany.
    2. Hirose, Kosuke & Matsumura, Toshihiro, 2023. "Green transformation in oligopoly markets under common ownership," Energy Economics, Elsevier, vol. 126(C).
    3. Zormpas, Dimitrios & Ruble, Richard, 2021. "The dynamics of preemptive and follower investments with overlapping ownership," Journal of Economic Dynamics and Control, Elsevier, vol. 129(C).
    4. Jiancai Pi & Pengqing Zhang, 2024. "Platform competition with common ownership," Journal of Economics, Springer, vol. 142(3), pages 247-265, August.
    5. Hirose, Kosuke & Matsumura, Toshihiro, 2022. "Common ownership and environmental Corporate Social Responsibility," Energy Economics, Elsevier, vol. 114(C).
    6. Ino, Hiroaki & Matsumura, Toshihiro, 2022. "Free entry under an output-cap constraint," Economics Letters, Elsevier, vol. 210(C).
    7. Moreno, Diego & Petrakis, Emmanuel, 2022. "The impact on market outcomes of the portfolio selection of large equity investors," Economics Letters, Elsevier, vol. 212(C).
    8. Nuowen Bai & Toshihiro Matsumura, 2023. "Common ownership in a delivered pricing duopoly," Journal of Economics, Springer, vol. 139(3), pages 191-208, August.
    9. Youping Li & Jie Shuai, 2022. "Input price discrimination and horizontal shareholding," Journal of Regulatory Economics, Springer, vol. 61(1), pages 48-66, February.
    10. Li, Youping & Zhang, Jianhu & Zhou, Zipeng, 2023. "Vertical differentiation with overlapping ownership," Economics Letters, Elsevier, vol. 222(C).
    11. Liu, Yi & Matsumura, Toshihiro, 2024. "Payoff interdependence and welfare-improving location diversification," MPRA Paper 120495, University Library of Munich, Germany.
    12. Lili Xu & Yidan Zhang & Toshihiro Matsumura, 2023. "Competition mode and common ownership in a mixed oligopoly," Manchester School, University of Manchester, vol. 91(4), pages 306-319, July.
    13. Haraguchi, Junichi & Matsumura, Toshihiro, 2020. "Common Ownership among Private Firms and Privatization Policies," MPRA Paper 102152, University Library of Munich, Germany.
    14. Yi Liu & Toshihiro Matsumura, 2024. "Welfare effects of common ownership in an international duopoly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(2), pages 459-477, May.
    15. Li, Youping & Zhang, Jianhu, 2021. "Product positioning with overlapping ownership," Economics Letters, Elsevier, vol. 208(C).

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    More about this item

    Keywords

    Overlapping ownership; Free entry; Insufficient entry; Excessive entry; Circular markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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