Common Ownership in Production Networks

We characterize the firm-level welfare effects of a small change in ownership overlap, and how it depends on the position in the production network.In our model, firms compete in prices, internalizing how their decisions affect the firms lying downstream as well as those that have common share-holders. While in a horizontal economy the common-ownership effects onequilibrium prices depend on firm markups alone, in the more general casedisplaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative questionof what are the welfare implications of affecting the ownership structure,we show that, if costs of adjusting it are large, the optimal intervention isproportional to the Bonacich centrality of each firm in the weighted networkquantifying interfirm price-mediated externalities. Finally, we also explainthat the parameters of the model can be identified from typically availabledata, hence rendering our model amenable to empirical analysis.