Vertical cross-shareholding: Theory and experimental evidence

Werner Güth, Nikos Nikiforakis, Hans Theo Normann

Research output: Contribution to journalArticle

Abstract

This paper analyzes vertical cross-shareholding, that is, the mutual holding of a minority of shares between vertically related firms. First, we explore the issue in a game-theoretic model and show that cross-shareholding is sufficient to obtain efficient outcomes. We then test the model's predictions in an experiment. Theory predicts the seller decisions accurately but the buyer decisions only to a small extent. Buyers are more likely to agree on cross-shareholding than sellers in an attempt to avoid the winner's curse. Cross-shareholding occurs more frequently than predicted, and it increases the likelihood of trade.

Original languageEnglish (US)
Pages (from-to)69-89
Number of pages21
JournalInternational Journal of Industrial Organization
Volume25
Issue number1
DOIs
StatePublished - Feb 1 2007

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Experiments
Cross-shareholding
Seller
Buyers
Prediction model
Minorities
Game-theoretic models
Experiment
Winner's curse

Keywords

  • Cross-shareholding
  • Experiments
  • Vertical merger
  • Winner's curse

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Strategy and Management
  • Industrial and Manufacturing Engineering

Cite this

Vertical cross-shareholding : Theory and experimental evidence. / Güth, Werner; Nikiforakis, Nikos; Normann, Hans Theo.

In: International Journal of Industrial Organization, Vol. 25, No. 1, 01.02.2007, p. 69-89.

Research output: Contribution to journalArticle

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