Free entry in a Cournot market with overlapping ownership

Xavier Vives Orestis Vravosinos - Nov 09, 2023

Working Paper No.   00130-00

We examine the effects of overlapping ownership among existing firms deciding whether to enter a new product market. We show that in most cases—and especially when overlapping ownership is already widespread, an increase in the extent of overlapping ownership will harm welfare by (i) softening product market competition, (ii) reducing entry, thereby (in contrast to standard results) inducing insufficient entry, and (iii) magnifying the negative impact of an increase of entry costs on entry. Overlapping ownership can mostly be beneficial only under substantial increasing returns to scale, in which case industry consolidation (induced by overlapping ownership) leads to sizable cost efficiencies.


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Free entry in a Cournot market with overlapping ownership

00130-02


Free entry in a Cournot market with overlapping ownership

00130-01