Common Ownership in Production Networks

Matteo Bizzarri and Fernando Vega-Redondo
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Fernando Vega-Redondo: Bocconi University and BIDSA.

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: 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 shareholders. While in a horizontal economy the common-ownership effects on equilibrium prices depend on firm markups alone, in the more general case displaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative question of what are the welfare implications of affecting the ownership structure, we show that, if costs of adjusting it are large, the optimal intervention is proportional to the Bonacich centrality of each firm in the weighted network quantifying interfirm price-mediated externalities. Finally, we also explain that the parameters of the model can be identified from typically available data, hence rendering our model amenable to empirical analysis.

Keywords: production networks; network games; common ownership; oligopoly. (search for similar items in EconPapers)
JEL-codes: D43 D57 D85 L13 L16 (search for similar items in EconPapers)
Date: 2024-03-14
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-net
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Working Paper: Common Ownership in Production Networks (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:707

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