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Vertical Cross-Shareholding Theory and Experimental Evidence

Author

Listed:
  • Werner Güth

  • Nikos Nikiforakis
  • Hans-Theo Normann

Abstract

This paper analyses vertical cross-shareholding, that is, the mutual holding of a minority of shares between vertically related firms. We investigate the conditions under which cross-shareholding improves efficiency. First, we explore the issue in a game-theoretic model and find that cross-shareholding is sufficient to obtain the first-best solution. We then proceed by testing these predictions experimentally. Our findings are that the theory predicts the sellers' decisions accurately and to some extent the price of the buyers. Cross-shareholding appears to occur more frequently than predicted and it enhances efficiency even where not predicted.

Suggested Citation

  • Werner Güth & Nikos Nikiforakis & Hans-Theo Normann, 2005. "Vertical Cross-Shareholding Theory and Experimental Evidence," Papers on Strategic Interaction 2005-11, Max Planck Institute of Economics, Strategic Interaction Group.
    • Handle: RePEc:esi:discus:2005-11
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    Cited by:

    1. Hunold, Matthias & Röller, Lars-Hendrik & Stahl, Konrad, 2012. "Backwards integration and strategic delegation," ZEW Discussion Papers 12-022, ZEW - Leibniz Centre for European Economic Research.
    2. repec:bla:germec:v:9:y:2008:i::p:87-95 is not listed on IDEAS
    3. Ke, Wan & Zhou, Xiaoyang & Lev, Benjamin & Shen, Wenjing, 2025. "Strategic Inventory with an Unreliable Manufacturer across Multiple Supply Chain Structures," Omega, Elsevier, vol. 133(C).
    4. Grigory Pishchulov & Knut Richter & Sougand Golesorkhi, 2023. "Supply chain coordination under asymmetric information and partial vertical integration," Annals of Operations Research, Springer, vol. 329(1), pages 1315-1356, October.
    5. Ren, Da & Guo, Rui & Lan, Yanfei & Shang, Changjing, 2021. "Shareholding strategies for selling green products on online platforms in a two-echelon supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    6. 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.
    7. Stahl, Konrad & Röller, Lars-Hendrik & Hunold, Matthias, 2012. "Backwards Integration and Strategic Delegation," CEPR Discussion Papers 8910, C.E.P.R. Discussion Papers.
    8. Sabri Boubaker & Pascal Nguyen & Wael Rouatbi, 2016. "Multiple Large Shareholders and Corporate Risk†taking: Evidence from French Family Firms," European Financial Management, European Financial Management Association, vol. 22(4), pages 697-745, September.
    9. Benndorf, Volker & Odenkirchen, Johannes, 2021. "An experiment on partial cross-ownership in oligopolistic markets," International Journal of Industrial Organization, Elsevier, vol. 78(C).
    10. Liangjie Xia & Qingyi Kong & Youdong Li & Juanjuan Qin, 2023. "Effect of equity holding on a supply chain’s pricing and emission reduction decisions considering information sharing," Annals of Operations Research, Springer, vol. 329(1), pages 619-656, October.
    11. Xia, Qiu & Zhi, Bangdong & Wang, Xiaojun, 2021. "The role of cross-shareholding in the green supply chain: Green contribution, power structure and coordination," International Journal of Production Economics, Elsevier, vol. 234(C).
    12. Chen, Jianxin & Hou, Rui & Zhang, Tonghua & Zhou, Yongwu, 2024. "Newsvendor model for a dyadic supply chain with push-pull strategy under shareholding and risk aversion," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 221(C), pages 645-662.
    13. Werner Güth & Manfred Stadler, 2007. "Path dependence without denying deliberation— a continuous transition model connecting teleology and evolution," Journal of Evolutionary Economics, Springer, vol. 17(1), pages 45-52, February.

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