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Overlapping Ownership, Endogenous Quality,and Welfare

Duarte Brito, Ricardo Ribeiro and Helder Vasconcelos ()

No 5, Working Papers de Economia (Economics Working Papers) from Católica Porto Business School, Universidade Católica Portuguesa

Abstract: This paper investigates how overlapping ownership affects quality levels, consumer surplus, firms' profits and welfare when the industry is a vertically differentiated duopoly and quality choice is endogenous. This issue is particularly relevant since recent empirical evidence suggests that overlapping ownership constitutes an important feature of a multitude of vertically differentiated industries. We show that overlapping ownership while detrimental for welfare, may increase or decrease the quality gap, consumer surplus and firms' profits. In particular, when the overlapping ownership structure is such that the high quality firm places a positive weight on the low quality firm's profits, the incentives of the high quality firm to compete aggressively reduce. This may increase the equilibrium quality of the low quality firm, which in turn may lead to higher consumer surplus, despite higher prices.

Keywords: Overlapping Ownership; Vertical Di¤erentiation. (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2019-12
New Economics Papers: this item is included in nep-bec and nep-com
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http://www.feg.porto.ucp.pt/docentes/repec/WP/0520 ... dogenous_Quality.pdf First version (application/pdf)

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Journal Article: Overlapping ownership, endogenous quality, and welfare (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cap:wpaper:052019

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