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Welfare improving common ownership in successive oligopolies: The role of the input market

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  • Toshihiro Matsumura
  • X. Henry Wang
  • Chenhang Zeng

Abstract

This study investigates the welfare consequences of common ownership in a successive vertical oligopoly, in which upstream firms produce a homogeneous input and compete in quantities, while downstream firms produce differentiated final products and compete either in quantities or prices. Common ownership in both markets internalizes a negative horizontal externality and a positive vertical externality. The interaction between these externalities shapes market outcomes. Our main results are summarized as follows. If the downstream market is monopolized, common ownership always improves welfare. However, if the upstream market is monopolized, common ownership benefits welfare under Bertrand competition but harms it under Cournot competition when the downstream market is competitive. Further, greater upstream competition weakens the pro‐competitive effect. Under Bertrand (Cournot) competition, common ownership harms welfare unless the upstream is (both upstream and downstream markets are) highly concentrated. These results suggest that whether common ownership benefits consumers and social welfare is crucially dependent on the competitiveness of upstream and downstream markets and the competition mode in the downstream market. Amélioration du bien‐être par la propriété commune dans les oligopoles successifs : le rôle du marché des intrants. La présente étude porte sur les conséquences de la propriété commune sur le bien‐être dans un oligopole successif vertical, dans lequel les entreprises en amont produisent des intrants homogènes et se font concurrence sur le plan des quantités, alors que les entreprises en aval produisent des produits finis différenciés et se font concurrence sur le plan des quantités ou des prix. La propriété commune dans les deux marchés internalise une externalité horizontale négative et une externalité verticale positive. L'interaction entre ces externalités façonne les effets de marché. Nos principaux résultats sont résumés ci‐dessous. Si le marché en aval est en situation de monopole, la propriété commune améliore toujours le bien‐être. Toutefois, si le marché en amont est en situation de monopole, la propriété commune favorise le bien‐être lorsqu'il y a concurrence de Bertrand, mais elle lui nuit lorsqu'il y a concurrence de Cournot et que le marché en aval est concurrentiel. En outre, une concurrence accrue en amont affaiblit l'effet favorable à la concurrence. Lorsqu'il y a concurrence de Bertrand (de Cournot), la propriété commune nuit au bien‐être sauf si la situation en amont (les marchés en amont et en aval) est très concentrée. Ces résultats suggèrent que les avantages de la propriété commune pour les consommateurs et le bien‐être collectif dépendent essentiellement de la concurrence des marchés en amont et en aval et du mode de concurrence sur le marché en aval.

Suggested Citation

  • Toshihiro Matsumura & X. Henry Wang & Chenhang Zeng, 2025. "Welfare improving common ownership in successive oligopolies: The role of the input market," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 58(1), pages 169-192, February.
    • Handle: RePEc:wly:canjec:v:58:y:2025:i:1:p:169-192
    DOI: 10.1111/caje.12751
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    References listed on IDEAS

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