IDEAS home Printed from https://ideas.repec.org/p/mib/wpaper/380.html
   My bibliography  Save this paper

Endogenous interlocking directorates

Author

Listed:
  • Maria Rosa Battaggion
  • Vittoria Cerasi

Abstract

The present paper analyzes the choice to place an executive in the board of the rival company, within a duopoly where firms with hidden marginal costs of production compete in the product market. Interlocking directorates may emerge as an equilibrium outcome whenever firms gain by exchanging information about their private costs. We show that a unilateral interlocking arises when firms have different degrees of efficiency and the direction of this interlock is affected by the degree of substitutability in the product market. Bilateral interlocking occurs only between similar firms, that is when equally inefficient firms sell substitute products or when equally efficient firms sell complement products. The equilibrium outcome is always welfare increasing for consumers.

Suggested Citation

  • Maria Rosa Battaggion & Vittoria Cerasi, 2018. "Endogenous interlocking directorates," Working Papers 380, University of Milano-Bicocca, Department of Economics, revised 01 May 2018.
  • Handle: RePEc:mib:wpaper:380
    as

    Download full text from publisher

    File URL: http://repec.dems.unimib.it/repec/pdf/mibwpaper380.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Giovanni Bartolomeo & Paolo Canofari, 2015. "Interlocking Directorates and Concentration in the Italian Insurance Market," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 351-362, December.
    2. Attila Ambrus & Markus Mobius & Adam Szeidl, 2014. "Consumption Risk-Sharing in Social Networks," American Economic Review, American Economic Association, vol. 104(1), pages 149-182, January.
    3. Bramoullé, Yann & Kranton, Rachel, 2007. "Risk-sharing networks," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 275-294.
    4. Carlos Drago & Francesco Millo & Roberto Ricciuti & Paolo Santella, 2011. "Corporate Governance Reforms, Interlocking Directorship Networks and Company Value in Italy (1998-2007)," CESifo Working Paper Series 3322, CESifo.
    5. James A. Brander & Barbara J. Spencer, 2015. "Endogenous Horizontal Product Differentiation under Bertrand and Cournot Competition: Revisiting the Bertrand Paradox," NBER Working Papers 20966, National Bureau of Economic Research, Inc.
    6. Julia Brennecke & Olaf N. Rank, 2017. "Tie heterogeneity in networks of interlocking directorates: a cost–benefit approach to firms’ tie choice," Business Research, Springer;German Academic Association for Business Research, vol. 10(1), pages 97-122, June.
    7. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
    8. Lode Li, 1985. "Cournot Oligopoly with Information Sharing," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 521-536, Winter.
    9. Santella, Paolo & Drago, Carlo & Polo, Andrea, 2007. "The Italian Chamber of Lords Sits on Listed Company Boards: An Empirical Analysis of Italian Listed Company Boards from 1998 to 2006," MPRA Paper 2265, University Library of Munich, Germany.
    10. Pombo, Carlos & Gutiérrez, Luis H., 2011. "Outside directors, board interlocks and firm performance: Empirical evidence from Colombian business groups," Journal of Economics and Business, Elsevier, vol. 63(4), pages 251-277, July.
    11. Drago, Carlo & Millo, Francesco & Ricciuti, Roberto & Santella, Paolo, 2015. "Corporate governance reforms, interlocking directorship and company performance in Italy," International Review of Law and Economics, Elsevier, vol. 41(C), pages 38-49.
    12. Helmers, Christian & Patnam, Manasa & Rau, P. Raghavendra, 2017. "Do board interlocks increase innovation? Evidence from a corporate governance reform in India," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 51-70.
    13. Fich, Eliezer M. & White, Lawrence J., 2005. "Why do CEOs reciprocally sit on each other's boards?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 175-195, March.
    14. repec:dau:papers:123456789/10840 is not listed on IDEAS
    15. Gal-Or, Esther, 1991. "Vertical Restraints with Incomplete Information," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 503-516, September.
    16. Piccolo, Salvatore & Pagnozzi, Marco, 2013. "Information sharing between vertical hierarchies," Games and Economic Behavior, Elsevier, vol. 79(C), pages 201-222.
    17. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
    18. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    19. Alberto Baccini & Leonardo Marroni, 2016. "Regulation of interlocking directorates in the financial sector: a comparative case study," European Journal of Law and Economics, Springer, vol. 41(2), pages 431-457, April.
    20. Marcel Fafchamps & Flore Gubert, 2007. "Risk Sharing and Network Formation," American Economic Review, American Economic Association, vol. 97(2), pages 75-79, May.
    21. Santella, Paolo & Drago, Carlo & Polo, Andrea & Gagliardi, Enrico, 2009. "A Comparison among the director networks in the main listed companies in France, Germany, Italy, and the United Kingdom," MPRA Paper 16397, University Library of Munich, Germany.
    22. Szymon Kaczmarek & Satomi Kimino & Annie Pye, 2014. "Interlocking directorships and firm performance in highly regulated sectors: the moderating impact of board diversity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 347-372, May.
    23. Carbonai Davide & Di Bartolomeo Giovanni, 2006. "Interlocking directorates as a trust substitute: The case of the Italian non-life insurance industry," wp.comunite 0001, Department of Communication, University of Teramo.
    24. Amir, Rabah & Erickson, Philip & Jin, Jim, 2017. "On the microeconomic foundations of linear demand for differentiated products," Journal of Economic Theory, Elsevier, vol. 169(C), pages 641-665.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Battaggion, Maria Rosa & Cerasi, Vittoria, 2020. "Strategic interlocking directorates," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 85-101.
    2. Camille Cornand & Rodolphe Dos Santos Ferreira, 2020. "The social value of information and the competition motive: price versus quantity games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(4), pages 1101-1137, November.
    3. Junjie Zhou & Xiaoshuai Fan & Ying-Ju Chen & Christopher S. Tang, 2021. "Information Provision and Farmer Welfare in Developing Economies," Manufacturing & Service Operations Management, INFORMS, vol. 23(1), pages 230-245, 1-2.
    4. Camille Cornand & Rodolphe dos Santos Ferreira, 2017. "The social value of information and the competition motive: Price vs. quantity games," Working Papers halshs-01614815, HAL.
    5. Jeitschko, Thomas D. & Liu, Ting & Wang, Tao, 2018. "Information Acquisition, signaling and learning in duopoly," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 155-191.
    6. Myatt, David P. & Wallace, Chris, 2015. "Cournot competition and the social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 466-506.
    7. Mark Bagnoli & Susan G. Watts, 2015. "Competitive intelligence and disclosure," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 709-729, October.
    8. Krishnan S. Anand & Manu Goyal, 2009. "Strategic Information Management Under Leakage in a Supply Chain," Management Science, INFORMS, vol. 55(3), pages 438-452, March.
    9. Xin Chen & Chang Yang, 2021. "Vertical interlock and the value of cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 561-593, March.
    10. Sjaak Hurkens, 2012. "Bayesian Nash Equilibrium in ''Linear'' Cournot Models with Private Information About Cost," UFAE and IAE Working Papers 924.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    11. Hyoduk Shin & Tunay I. Tunca, 2010. "Do Firms Invest in Forecasting Efficiently? The Effect of Competition on Demand Forecast Investments and Supply Chain Coordination," Operations Research, INFORMS, vol. 58(6), pages 1592-1610, December.
    12. David Spector, 2021. "Market share transparency, signaling and welfare: Cournot and Bertrand," PSE Working Papers halshs-02946654, HAL.
    13. Goltsman, Maria & Pavlov, Gregory, 2014. "Communication in Cournot oligopoly," Journal of Economic Theory, Elsevier, vol. 153(C), pages 152-176.
    14. Wei-Shiun Chang & Daniel A. Sanchez-Loor, 2020. "Downstream Information Leaking and Information Sharing Between Partially Informed Retailers," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 733-760, December.
    15. Qiu, Larry D. & Zhou, Wen, 2006. "International mergers: Incentives and welfare," Journal of International Economics, Elsevier, vol. 68(1), pages 38-58, January.
    16. António Brandão & Joana Pinho, 2015. "Asymmetric Information And Exchange Of Information About Product Differentiation," Bulletin of Economic Research, Wiley Blackwell, vol. 67(2), pages 166-185, April.
    17. Ilkka Leppänen, 2020. "Partial commitment in an endogenous timing duopoly," Annals of Operations Research, Springer, vol. 287(2), pages 783-799, April.
    18. Tunay I. Tunca, 2004. "Information Precision and Asymptotic Efficiency of Industrial Markets," Working Papers 04-11, NET Institute, revised Oct 2004.
    19. Young-Ro Yoon, 2008. "Strategic Disclosure of Valuable Information within Competitive Environments," CAEPR Working Papers 2008-022, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    20. Medín, J. Andrés Faíña & Rodríguez, Jesús López & Rodríguez, José López, 2003. "Information Exchanges in Cournot Duopolies," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 57(1), January.

    More about this item

    Keywords

    Oligopoly; Firm Organization and Market Structure; Executives;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mib:wpaper:380. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/dpmibit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Matteo Pelagatti (email available below). General contact details of provider: https://edirc.repec.org/data/dpmibit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.