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Cross-ownership and stability in a Cournot duopoly

Author

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  • Fanti, Luciano
  • Gori, Luca

Abstract

This paper analyses the dynamics of a Cournot duopoly under cross-ownership participation when players have heterogeneous, i.e. bounded rational and naïve, expectations. We find that when the shareholder that owns firm also holds a percentage of firm , the parametric stability region of the unique Cournot-Nash equilibrium is larger than when every firm is owned by a unique shareholder, and an increase in the fraction of shares that the shareholder that owns firm has in firm tends to stabilise the market equilibrium. Moreover, when products are (horizontally) differentiated, a rise in the fraction of shares of firm held by the shareholder that owns firm acts as an economic (de)stabiliser when products of variety and are (complements) substitutes between each other. The policy implication is that, despite on the one hand, cross-ownership acts as an anti-competitive device that indeed tends to reduce social welfare with the corresponding anti-trust consequences, on the other hand, it acts as an economic stabiliser (except when products are complements).

Suggested Citation

  • Fanti, Luciano & Gori, Luca, 2011. "Cross-ownership and stability in a Cournot duopoly," MPRA Paper 34574, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34574
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    File URL: https://mpra.ub.uni-muenchen.de/34574/1/MPRA_paper_34574.pdf
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    References listed on IDEAS

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    4. Fanti, Luciano & Gori, Luca, 2012. "The dynamics of a differentiated duopoly with quantity competition," Economic Modelling, Elsevier, vol. 29(2), pages 421-427.
    5. 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.
    6. Zhang, Jixiang & Da, Qingli & Wang, Yanhua, 2007. "Analysis of nonlinear duopoly game with heterogeneous players," Economic Modelling, Elsevier, vol. 24(1), pages 138-148, January.
    7. Rupayan Pal, 2010. "How much should you own? Cross-ownership and privatization," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2010-015, Indira Gandhi Institute of Development Research, Mumbai, India.
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    More about this item

    Keywords

    Bifurcation; Cournot; Cross-ownership; Duopoly;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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