Partial Cross-Ownership, Cost Asymmetries, and Welfare

The present study analyses the effects on social welfare of the existence of cross-participation at ownership level in a Cournot duopoly. We show that cross-participation, although it lowers the degree of competition by reducing total output and consumer surplus, may increase social welfare, provided that (i) the firm owned by a single shareholder is less efficient than the other (cross-participated) firm and (ii) the size of the market is not too large. Therefore, the policy implication is that larger cross-participations at ownership level should be favoured, despite their anticompetitive nature, when the cross-participated firm is relatively more efficient and the extent of the market is not too large.