The effects of optimal cross holding in an asymmetric oligopoly

Hongkun Ma and Chenhang Zeng

Bulletin of Economic Research, 2022, vol. 74, issue 4, 1053-1066

Abstract: This paper studies the endogenous formation of cross holding and its welfare implications in an asymmetric Cournot oligopoly with one acquiring firm holding passive ownership in one of its rivals. With the presence of cost asymmetry, we show that the acquiring firm will always choose to hold ownership in the most efficient rival. The optimal level of ownership is determined by market demand, the number, and cost distribution of firms. We further analyze the welfare implications of cross holding and characterize both socially excessive and insufficient cross holdings.

Date: 2022
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