Welfare effects of cross-ownership in a unionised duopoly

The present study analyses the effects of an increase in the share of one-sided cross-ownership in a Cournot duopoly with firm-specific monopolistic unions. Since the cross-participation at ownership level implies a lower degree of competition, then in a duopoly without unions, as expected, consumer surplus and social welfare, despite the increase in the industry profits, are reduced when cross-participation increases. By contrast, when the labour market is unionised, I show the counterintuitive result that, despite the degree of competition is reduced by cross-ownership, both consumer surplus and social welfare increase with the share of cross-participation. This always occurs provided that unions are sufficiently wage-oriented. Moreover, it is shown that the results are also robust to the Bertrand mode of competition. Therefore, the policy implication is that, when wage-interested unions are in existence in oligopoly industries, a rise in cross-participation - i.e. a lower degree of competition - is socially preferred.