Overlapping ownership, endogenous quality, and welfare

• Type: Article in International Scientific Journal
• Date: 2020-05-01

Authors

Brito, Duarte (Author) Other; Ribeiro, Ricardo (Author) Other; Helder Vasconcelos (Author) FEP

Journal

Title: Economics Letters

Vol. 190

ISSN: 0165-1765

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 11 Citations

Scopus - 12 Citations

Other information

Authenticus ID: P-00R-XJ5

DOI: 10.1016/j.econlet.2020.109074

Abstract (EN): 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.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 5