Downstream Cross‐Holdings and Upstream R&D: A Comment

Yake Jin, Arijit Mukherjee and Chenhang Zeng

Journal of Industrial Economics, 2024, vol. 72, issue 4, 1360-1368

Abstract: According to Hu et al. [Journal of Industrial Economics, 70(3), pp. 775–789], downstream cross‐holdings are permissible based on the social welfare standard if the investment technology in the upstream sector is highly inefficient. However, the conclusion of that paper relies on a definition of downstream producer surplus that is not so commonly found in the literature. After using a more commonly found definition of downstream producer surplus, this note demonstrates that downstream cross‐holdings have detrimental impacts on both consumer surplus and social welfare, emphasizing the need for efficient and effective regulations on downstream cross‐holdings in Hu et al. [Journal of Industrial Economics, 70(3), pp. 775–789] type economy.

Date: 2024
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