Overlapping ownership and input prices

Abstract

This paper studies the effect of overlapping ownership in a setting where firms must contract with an input supplier before competing in the product market. Horizontal ownership among the competing firms can here affect the input prices set by the supplier. I derive conditions for when overlapping ownership raises, reduces, or has no effect on input prices. The key factor is how demand curvature varies with total output. When overlapping ownership reduces input prices, the cost reduction is in turn passed on to consumers. This indirect effect offsets – and can even outweigh – the direct negative effect of overlapping ownership on product market competition.