Does Common Ownership Distort Entry Incentives In Successive Oligopolies?

It is commonly believed that common ownership deters entry by internalizing market competition which warrants pro-competitive entry regulations. Using a successive oligopoly model with common ownership, we challenge this conventional wisdom. We show that if the downstream sector alone operates under common ownership, entry is always socially excessive, i.e., more firms enter the market than is socially optimal. In contrast, when the upstream sector alone operates under common ownership, entry is socially excessive (insufficient) if the degree of common ownership in the upstream market is reasonably low (high). Finally, when both sectors are characterized by common ownership, entry is socially excessive if the degree of ownership in the downstream market is stronger than that in the upstream market. Therefore, our findings provide a rationale for anti-competitive, rather than pro-competitive entry regulations.