NO : WP-2024-003
AUTHOR : Rupayan Pal and Emmanuel Petrakis
TITLE : Cross-ownership in duopoly: Are there any incentives to divest?
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 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 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.
JEL Code: L13, L41, L2, D43
Weblink: http://www.igidr.ac.in/pdf/publication/WP-2024-003.pdf
