Horizontal Partial Cross Ownership and Vertical Bargaining in a Bilateral Oligopoly

ABSTRACT

This paper examines the effects of horizontal partial cross ownership (PCO) in a vertical bargaining framework. We show that downstream PCO operates through two opposing mechanisms. The horizontal concentration effect raises prices, whereas the vertical mitigation effect lowers prices by enhancing buyer power and mitigating double marginalization. When the vertical mitigation effect prevails, downstream PCO yields pro‐competitive outcomes and improves welfare. In contrast, upstream PCO erodes downstream firms’ bargaining leverage, dampening these pro‐competitive benefits and leading to anti‐competitive outcomes once it exceeds a critical threshold. Under upstream monopoly, downstream PCO has no impact on wholesale pricing, leaving only the anti‐competitive horizontal concentration effect.