Overlapping Ownership, R&D Spillovers, and Antitrust Policy

Overlapping Ownership, R&D Spillovers, and Antitrust Policy

Ángel L. López, Xavier Vives

Series number :

Serial Number: 
538/2017

Date posted :

November 21 2017

Last revised :

November 21 2017
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Keywords

  • competition policy • 
  • partial merger • 
  • collusion • 
  • innovation • 
  • minority shareholdings • 
  • Common ownership • 
  • cross-ownership

This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with overlapping ownership.

We show that overlapping ownership leads to internalization of rivals’ profits by firms and find that, for demand not too convex, increases in overlapping ownership increase (decrease) R&D and output for high (low) enough spillovers while it increases R&D but decreases output for intermediate levels of spillovers. There is scope for overlapping ownership to improve welfare provided that spillovers are sufficiently large. The socially optimal degree of overlapping ownership increases with the number of firms, with the elasticity of demand and of the innovation function, and with the extent of spillover effects. In terms of consumer surplus standard, the desirability of overlapping ownership is greatly reduced even under low market concentration. When R&D has commitment value and spillovers are high the optimal extent of overlapping ownership is higher. The results obtained are robust in the context of a Bertrand oligopoly model with product differentiation.

Authors

Real name:
Ángel L. López