Losses from cross-ownership due to risk aversion

Gökhan Can ()
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Gökhan Can: Università Cattolica del Sacro Cuore

Economics Bulletin, 2025, vol. 45, issue 3, 1451 - 1456

Abstract: This study analyzes a Cournot duopoly with two risk-averse firms facing demand uncertainty. Each firm passively holds a minority stake in the other's profits, introducing cross-ownership into a mean-variance framework. Cross-ownership reduces output and raises the expected price-cost margin. Its effect on expected total profits depends on the degree of risk aversion: with low risk aversion, expected total profits follow an inverted U-shape as cross-ownership increases; with high risk aversion, expected total profits decline. The reduction in expected total profits occurs when the rise in the expected price-cost margin fails to offset the output decline.

Keywords: Cross-ownership; Cournot duopoly; risk aversion; demand uncertainty (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2025-09-30
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