Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/23467 
Year of Publication: 
2003
Series/Report no.: 
CSIO Working Paper No. 0038
Publisher: 
Northwestern University, Center for the Study of Industrial Organization (CSIO), Evanston, IL
Abstract: 
This paper shows how competing firms can facilitate tacit collusion by making passive investments in rivals. In general, the incentives of firms to collude depend in a complex way on the whole set of partial cross ownership (PCO) in the industry. We show that when firms are identical, only multilateral PCO may (but need not) facilitate tacit collusion. A firm?s controller can facilitate tacit collusion further by investing directly in rival firms and by diluting his stake in his own firm. In the presence of cost asymmetries, even unilateral PCO by efficient firms in a less efficient rival can facilitate tacit collusion.
Subjects: 
partial cross ownership
repeated Bertrand oligopoly
tacit collusion
controlling shareholder
cost asymmetries
JEL: 
D43
L41
Document Type: 
Working Paper

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