On the profitability of cross-ownership in Cournot nonrenewable resource oligopolies: Stock size matters

Miao Dai (), Hassan Benchekroun and Ngo Long

Journal of Environmental Economics and Management, 2022, vol. 111, issue C

Abstract: We examine the profitability of cross-ownership in a nonrenewable resource oligopolistic industry where firms compete as Cournot rivals. Assuming a subset of the oligopolists own a share in each other’s profits, we show that a symmetric cross-ownership can be profitable for any number of participating firms, provided that the initial resource stock owned by each firm is small enough. This is in sharp contrast with the static case where for any levels of non-controlling minority shareholdings, a symmetric cross-ownership is never (always) profitable if the relative number of participating firms is below (above) some lower (upper) threshold. When the relative number of participating firms is in between the two thresholds, profitability of cross-ownership depends on the level of shareholdings. We also highlight that cross-ownership can be preferable to a horizontal merger in terms of Cournot competition. Not only is it more profitable to do so, more importantly, it constitutes a shrewd strategy to avoid the possible legal challenges. Finally, we show that cross-ownership may turn out to be relatively less detrimental to society in a nonrenewable resource industry than other industries where resource constraints are absent. Thus, a specific analysis is needed when dealing with industries where resource constraints play an important role.

Keywords: Cross-ownership; Profitability; Oligopoly; Shareholdings; Nonrenewable resources; Resource stock; Horizontal merger; Competition policy; Antitrust (search for similar items in EconPapers)
JEL-codes: L13 L41 Q3 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:111:y:2022:i:c:s0095069621001388

DOI: 10.1016/j.jeem.2021.102597

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