Partial cross ownership and tacit collusion

Abstract

We examine the effects that passive investments in rival firms have on the incentives of firms to engage in tacit collusion. In general, these incentives depend in a complex way on the entire partial cross ownership (PCO) structure in the industry. We establish necessary and sufficient conditions for PCO arrangements to facilitate tacit collusion and also examine how tacit collusion is affected when firms' controllers make direct passive investments in rival firms.