Vertical Cross-Shareholding Theory and Experimental Evidence

Werner Güth (), Nikos Nikiforakis () and Hans-Theo Normann ()

Discussion Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: This paper analyses vertical cross-shareholding, that is, the mutual holding of a minority of shares between vertically related firms. We investigate the conditions under which cross-shareholding improves efficiency. First, we explore the issue in a game-theoretic model and find that cross-shareholding is sufficient to obtain the first-best solution. We then proceed by testing these predictions experimentally. Our findings are that the theory predicts the sellers' decisions accurately and to some extent the price of the buyers. Cross-shareholding appears to occur more frequently than predicted and it enhances efficiency even where not predicted.

New Economics Papers: this item is included in nep-com and nep-exp
Date: 2005-05

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ftp://papers.econ.mpg.de/esi/discussionpapers/2005-11.pdf (application/pdf)

Related works:
Journal Article: Vertical cross-shareholding: Theory and experimental evidence (2007)
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