Cross-ownership and managerial delegation under vertical product differentiation: Revisiting with a quality-related cost

Mingqing Xing () and Sang-Ho Lee ()
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Mingqing Xing: Weifang University
Sang-Ho Lee: Chonnam National University

Journal of Economics, 2025, vol. 146, issue 1, No 3, 77-101

Abstract: Abstract In a recent paper in this journal, Wang, Wang and Liu (J Econ 143:161–181, 2024) provided important policy implications for competition law in a quality-differentiated duopoly model under managerial delegation and cross-ownership. While they focused on quantity-dependent convex cost, we employ quality-dependent cost and revisit their analysis, suggesting reversed results from their findings. We find that managerial delegation coefficient of the firm producing low-quality products will be lower than that of the firm producing high-quality products, and the coefficient difference might increase as cross-ownership increases when quality difference is high. We also find that managerial delegation might improve social welfare when quality difference is relatively low, while cross-ownership intensifies the negative impact of managerial delegation on joint profits when quality difference is relatively high. Our findings suggest that policy concern for competitive law should examine not only quality-related cost structure but product quality difference when regulating cross-shareholdings among firms under managerial delegation, particularly paying attention to the degree of cross-shareholdings and the context of delagation contract by a low-quality firm that has passive shares of its rival high-quality firm.

Keywords: Managerial delegation; Cross ownership; Vertical differentiation (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 L33 L50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:146:y:2025:i:1:d:10.1007_s00712-025-00911-3

DOI: 10.1007/s00712-025-00911-3

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