Cross-ownership and managerial delegation under vertical product differentiation

Xingtang Wang (), Leonard F. S. Wang () and Huizhong Liu ()
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Xingtang Wang: Guangdong University of Foreign Studies
Leonard F. S. Wang: Zhongnan University of Economics and Law
Huizhong Liu: Zhongnan University of Economics and Law

Journal of Economics, 2024, vol. 143, issue 2, No 3, 181 pages

Abstract: Abstract We construct a vertical product differentiation duopoly model incorporating managerial delegation and cross-ownership. By exploring the interplay of these factors, we find a U-shaped relationship between endogenous managerial delegation coefficients and cross-ownership. The difference in managerial delegation coefficients between the two firms decreases as the cross-ownership proportion increases. In an ownership structure involving cross-ownership of firms producing different quality products, managerial delegation improves firms’ profits while reducing consumer surplus and social welfare in a vertical product differentiation market. Moreover, cross-ownership intensifies the positive impact of managerial delegation on joint profits and the negative effects on consumer surplus and social welfare. Consequently, regulating cross-ownership among firms in vertically differentiated product markets is an important policy issue for competition law.

Keywords: Cross-ownership; Managerial delegation; Vertical product differentiation (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 L33 L50 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:143:y:2024:i:2:d:10.1007_s00712-024-00871-0

DOI: 10.1007/s00712-024-00871-0

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