Cross-ownership in duopoly: Are there any incentives to divest?

Rupayan Pal and Emmanuel Petrakis ()
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Emmanuel Petrakis: Universidad Carlos III de Madrid

Economic Theory, 2025, vol. 80, issue 3, No 3, 703-744

Abstract: Abstract This paper shows that in a duopoly a firm has no incentives to divest its passive shares in its rival when firms’ strategies are strategic complements. This holds independently whether goods are substitutes or complements and whether firms engage in simultaneous or sequential move product market competition. However, if firms’ strategies are strategic substitutes and are engaged in simultaneous move competition, it is optimal for both firms to fully divest their shares in their rivals under a private placement mechanism via independent intermediaries or under efficient competitive bidding. Yet, in the sequential move game only the follower has such incentives. Notably, under a private placement mechanism via a common intermediary, there are often circumstances under which there are partial or no firms’ divestment incentives, highlighting that the divestment mechanism employed by firms may have a crucial role on their divestment incentives.

Keywords: Cross-ownership; Passive shares; Strategic substitutes and complements; Divestment incentives; Market competition (search for similar items in EconPapers)
JEL-codes: D43 L13 L2 L41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00199-025-01638-4

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