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Strategic capacity investment with common ownership

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  • De Giovanni, Domenico
  • Ruble, Richard
  • Zormpas, Dimitrios

Abstract

We study how common ownership affects the magnitude and dynamics of investments in a duopoly. Followers exhibit less aggressive timing and quantity reactions because they internalize their effects on leaders. Leaders are therefore more likely to opt for a deterrence strategy, but their own internalization of followers softens their decisions. If firm roles are exogenous, high common ownership links lead to a relatively efficient staged investment outcome. Conversely, if firm roles are endogenous, high common ownership drives the winner of the preemption race to concede a “follower monopoly.” Our numerical analysis finds that common ownership is generally detrimental to consumer surplus and welfare.

Suggested Citation

  • De Giovanni, Domenico & Ruble, Richard & Zormpas, Dimitrios, 2025. "Strategic capacity investment with common ownership," European Journal of Operational Research, Elsevier, vol. 327(1), pages 340-351.
    • Handle: RePEc:eee:ejores:v:327:y:2025:i:1:p:340-351
    DOI: 10.1016/j.ejor.2025.05.026
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    Keywords

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    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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