“Cross-Holdings in Cournot Duopoly with Asymmetric Information”

Longhua Liu, Shandong University

Junshan Lin, People’s Bank of China

Cheng-Zhong Qin, University of California, Santa Barbara


When a firm increases its passive ownership in a rival firm, it is induced to take into more consideration the effect of its decision on the rival’s profit. This increased consideration makes the firm compete less aggressively, a fact that is generally understood for causing anticompetitive effects of passive cross- holdings. In this paper we show that with asymmetric technologies, a firm may also be induced to compete less aggressively when its ownership is passively held by a more efficient firm. In case with information asymmetry on technologies, cross-holdings may make it desirable for both the more and less efficient firms to reveal private information.