DP11315 Overlapping Ownership, R&D Spillovers, and Antitrust Policy

Author(s): Ángel Luis López, Xavier Vives
Publication Date: June 2016
Date Revised: July 2018
Keyword(s): Collusion, common ownership, competition policy, cross-ownership, innovation, minority shareholdings, modified HHI, partial merger
JEL(s): D43, L13, O32
Programme Areas: Financial Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11315

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.