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Effect of partial cross ownership on supply chain performance


  • Chen, Jiguang
  • Hu, Qiying
  • Song, Jing-Sheng


Partial cross ownership (PCO) in a dyad supply chain refers to a situation where each firm holds a portion of its partner’s shares. We study this topic in push and pull supply chains, and prove that neither the supply chain’s nor any member’s profit changes with the percentage of the leader’s shares the follower holds. However, while the profits of the chain and the leader increase with the percentage of the follower’s shares held by the leader, the follower’s profit does not necessarily increase or decrease. As a result, both partners can always achieve a win–win by setting a proper price for transferring the follower’s shares to the leader. Moreover, the equilibrium wholesale price may be greater than the retail price in the push chain, but less than the marginal production cost in the pull chain, contradicting the usual results found in the literature. We also derive a necessary and sufficient condition on the structure of PCO allowing a pull chain to perform better than a push one. This extends Cachon (2004)’s result that a pull chain always performs better than a push one (without PCO). Finally, PCO can coordinate a chain if and only if each one holds half of the other’s shares.

Suggested Citation

  • Chen, Jiguang & Hu, Qiying & Song, Jing-Sheng, 2017. "Effect of partial cross ownership on supply chain performance," European Journal of Operational Research, Elsevier, vol. 258(2), pages 525-536.
  • Handle: RePEc:eee:ejores:v:258:y:2017:i:2:p:525-536
    DOI: 10.1016/j.ejor.2016.08.046

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    References listed on IDEAS

    1. Gérard P. Cachon, 2004. "The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts," Management Science, INFORMS, vol. 50(2), pages 222-238, February.
    2. Guth, Werner & Nikiforakis, Nikos & Normann, Hans-Theo, 2007. "Vertical cross-shareholding: Theory and experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 69-89, February.
    3. Levy, Marc, 2011. "The Banzhaf index in complete and incomplete shareholding structures: A new algorithm," European Journal of Operational Research, Elsevier, vol. 215(2), pages 411-421, December.
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    5. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros, 2015. "Dividend policy, managerial ownership and debt financing: A non-parametric perspective," European Journal of Operational Research, Elsevier, vol. 241(3), pages 783-795.
    6. Bernstein, Fernando & Song, Jing-Sheng & Zheng, Xiaona, 2008. ""Bricks-and-mortar" vs. "clicks-and-mortar": An equilibrium analysis," European Journal of Operational Research, Elsevier, vol. 187(3), pages 671-690, June.
    7. Dietzenbacher, Erik & Smid, Bert & Volkerink, Bjorn, 2000. "Horizontal integration in the Dutch financial sector," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1223-1242, December.
    8. Kornbluth, J. S. H. & Salkin, G. R., 1994. "Mathematical programming models for ownership and control of European and American groups of companies," European Journal of Operational Research, Elsevier, vol. 74(3), pages 479-494, May.
    9. Alley, Wilson A, 1997. "Partial Ownership Arrangements and Collusion in the Automobile Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 191-205, June.
    10. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    11. 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, vol. 0(Number 2), pages 73-95.
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