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  5. Free Entry in a Cournot Market With Overlapping Ownership

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Free Entry in a Cournot Market With Overlapping Ownership

  • Xavier Vives
  • Orestis Vravosinos
American Economic Journal: Microeconomics (Forthcoming)

Abstract

We examine the effects of overlapping ownership among existing firms deciding whether to enter a product market. We show that in most cases—and especially when overlapping ownership is already widespread, an increase in the extent of overlapping ownership will harm welfare by softening product market competition, reducing entry, thereby (in contrast to standard results) inducing insufficient entry, and magnifying the negative impact of an increase of entry costs on entry. Overlapping ownership can mostly be beneficial only under substantial increasing returns to scale, in which case industry consolidation (induced by overlapping ownership) leads to sizable cost efficiencies.

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