Endogenous interlocking directorates

Maria Rosa Battaggion and Vittoria Cerasi

No 380, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: The present paper analyzes the choice to place an executive in the board of the rival company, within a duopoly where firms with hidden marginal costs of production compete in the product market. Interlocking directorates may emerge as an equilibrium outcome whenever firms gain by exchanging information about their private costs. We show that a unilateral interlocking arises when firms have different degrees of efficiency and the direction of this interlock is affected by the degree of substitutability in the product market. Bilateral interlocking occurs only between similar firms, that is when equally inefficient firms sell substitute products or when equally efficient firms sell complement products. The equilibrium outcome is always welfare increasing for consumers.

Keywords: Oligopoly; Firm Organization and Market Structure; Executives (search for similar items in EconPapers)
JEL-codes: L22 M12 (search for similar items in EconPapers)
Pages: 22
Date: 2018-05-01, Revised 2018-05-01
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:380

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