Cross‐Ownership and Endogenous Choices of Delegation in Mixed Markets

ABSTRACT This study examines how cross‐ownership affects endogenous managerial delegation under Cournot competition in a mixed duopoly, in which either the public or the private firm holds shares in its rival. When the public firm owns shares in the private firm, three asymmetric equilibria may arise depending on the ownership share: only one firm delegates, the public firm delegates while the private firm does not, or the reverse. In this case, welfare is higher when delegation is undertaken by the private firm rather than by the public firm. Conversely, when the private firm holds shares in the public firm, two asymmetric equilibria emerge depending on the ownership share, and welfare is higher when the public firm delegates rather than the private firm. These results arise because a decrease (an increase) in the ownership share corresponds to a higher (lower) weight placed on private profit: the firm increasingly internalizes (or separates) the rival's profit in its strategic objectives. Extending the framework to allow for privatization yields additional welfare implications.