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Cross-ownership in duopoly: Are there any incentives to divest?

Author

Listed:
  • Rupayan Pal

    (Indira Gandhi Institute of Development Research)

  • Emmanuel Petrakis

    (Departamento de Econom a, Universidad Carlos III de Madrid)

Abstract

This paper shows that in a duopoly a firm has no incentives to divest its passive shares in its rival when firms' strategies are strategic complements. This holds independently whether goods are substitutes or complements and whether firms engage in simultaneous or sequential move product market competition. However, if firms' strategies are strategic substitutes and are engaged in simultaneous move competition, it is optimal for both firms to fully divest their shares in their rivals under a private placement mechanism via independent intermediaries or under competitive bidding. Yet, in the sequential move game only the follower has such incentives. Notably, under a private placement mechanism via a common intermediary, there are circumstances under which there are partial or no firms' divestment incentives, highlighting that the divestment mechanism employed by firms may have a crucial role on their divestment incentives.

Suggested Citation

  • Rupayan Pal & Emmanuel Petrakis, 2024. "Cross-ownership in duopoly: Are there any incentives to divest?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-003, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2024-003
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2024-003.pdf
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    References listed on IDEAS

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    1. Mukherjee, Arijit & Zeng, Chenhang, 2024. "Downstream cross-holdings and divestment incentives under bilateral bargaining," Economics Letters, Elsevier, vol. 242(C).

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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