TY - JOUR
T1 - Overlapping ownership, endogenous quality, and welfare
AU - Brito, Duarte
AU - Ribeiro, Ricardo
AU - Vasconcelos, Helder
N1 - info:eu-repo/grantAgreement/FCT/6817 - DCRRNI ID/UIDB%2F04007%2F2020/PT#
info:eu-repo/grantAgreement/FCT/6817 - DCRRNI ID/UID%2FGES%2F00731%2F2019/PT#
info:eu-repo/grantAgreement/FCT/6817 - DCRRNI ID/UID%2FECO%2F04105%2F2019/PT#
We would like to thank the Editor, Joseph E. Harrington, and an anonymous referee for their thorough and thoughtful reports.
PY - 2020/5/1
Y1 - 2020/5/1
N2 - This paper investigates how overlapping ownership affects quality levels, consumer surplus, firms’ profits and welfare when the industry is a vertically differentiated duopoly and quality choice is endogenous. This issue is particularly relevant since recent empirical evidence suggests that overlapping ownership constitutes an important feature of a multitude of vertically differentiated industries. We show that overlapping ownership, while detrimental for welfare, may increase or decrease the quality gap, consumer surplus and firms’ profits. In particular, when the overlapping ownership structure is such that the high quality firm places a positive weight on the low quality firm's profits, the incentives of the high quality firm to compete aggressively reduce. This may increase the equilibrium quality of the low quality firm, which in turn may lead to higher consumer surplus, despite higher prices.
AB - This paper investigates how overlapping ownership affects quality levels, consumer surplus, firms’ profits and welfare when the industry is a vertically differentiated duopoly and quality choice is endogenous. This issue is particularly relevant since recent empirical evidence suggests that overlapping ownership constitutes an important feature of a multitude of vertically differentiated industries. We show that overlapping ownership, while detrimental for welfare, may increase or decrease the quality gap, consumer surplus and firms’ profits. In particular, when the overlapping ownership structure is such that the high quality firm places a positive weight on the low quality firm's profits, the incentives of the high quality firm to compete aggressively reduce. This may increase the equilibrium quality of the low quality firm, which in turn may lead to higher consumer surplus, despite higher prices.
KW - Overlapping ownership
KW - Vertical differentiation
UR - http://www.scopus.com/inward/record.url?scp=85081993609&partnerID=8YFLogxK
U2 - 10.1016/j.econlet.2020.109074
DO - 10.1016/j.econlet.2020.109074
M3 - Article
AN - SCOPUS:85081993609
SN - 0165-1765
VL - 190
JO - Economics Letters
JF - Economics Letters
M1 - 109074
ER -