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Interlocking cross-ownership in a unionised duopoly: when social welfare benefits from “more collusion”

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  • Luciano Fanti

    (University of Pisa)

Abstract

The present study analyses the effects of two-sided cross-ownership structures in a Cournot duopoly with firm-specific monopolistic unions. Since such mutual cross-participations imply a lower degree of competition, the conventional wisdom is that consumer surplus and social welfare, despite the increase in industry profits, are harmed. By contrast, when the labour market is unionised, we show the counterintuitive result that both consumer surplus and social welfare increase with the share of mutual cross-participation. Interestingly, this occurs not only when unions are wage-aggressive but even if they are fairly “risk-averse”. Therefore, a rather paradoxical conclusion—which may have anti-trust policy implications—is that the interlocking cross-ownership ensuring the highest profit (i.e. the “most” collusive mutual cross-participation) may be socially preferred when there are unions in oligopoly industries. Finally, it is shown that, even though details change, the results also hold qualitatively under differentiated products, price competition and triopoly.

Suggested Citation

  • Luciano Fanti, 2016. "Interlocking cross-ownership in a unionised duopoly: when social welfare benefits from “more collusion”," Journal of Economics, Springer, vol. 119(1), pages 47-63, September.
    • Handle: RePEc:kap:jeczfn:v:119:y:2016:i:1:d:10.1007_s00712-016-0485-5
    DOI: 10.1007/s00712-016-0485-5
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    References listed on IDEAS

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    Cited by:

    1. Shohei Yoshida, 2018. "Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship," Journal of Economics, Springer, vol. 124(2), pages 139-158, June.
    2. Buccella Domenico, 2019. "A Simple Model for the Integration of Goods and the Capital Market with Unionized Labor Markets," Ekonomika (Economics), Sciendo, vol. 98(1), pages 19-37, June.
    3. Luciano Fanti & Domenico Buccella, 2021. "Strategic trade policy with interlocking cross-ownership," Journal of Economics, Springer, vol. 134(2), pages 147-174, October.
    4. Jianxia Yang & Chenhang Zeng, 2021. "Collusive stability of cross-holding with cost asymmetry," Theory and Decision, Springer, vol. 91(4), pages 549-566, November.
    5. Dong, Quan & Chang, Yang-Ming, 2020. "Emission taxes vs. environmental standards under partial ownership arrangements," Research in Economics, Elsevier, vol. 74(3), pages 250-262.
    6. Shi, Yuan & Wang, Xinhua & Gao, Hongwei, 2021. "Profit formulation and equilibrium strategy of firms with cross-shareholding," Finance Research Letters, Elsevier, vol. 38(C).

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    More about this item

    Keywords

    Two-sided cross-ownership; Duopoly; Unions; Social Welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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