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<p>In a duopoly market with asymmetric costs, we examine firms’ strategic incentives to create competing divisions when the more efficient firm has partial passive ownership holdings (PPOs) in the inefficient rival. We develop a two-stage game where firms choose the number of divisions in the first stage and all of the divisions engage in Cournot competition in the second stage. We show that the presence of PPOs guarantees the existence of an equilibrium with a finite number of divisions per firm. We also find that PPOs may have either a positive or a negative effect on firms’ incentives to divisionalize, depending on the efficiency gap between the two firms and the number of PPOs. Finally, the presence of PPOs can increase aggregate output and consumer surplus. We thus highlight a novel pro-competitive effect of PPOs.</p>

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Partial Passive Ownership Holdings and Divisionalization

  • 期刊论文

  • 发表日期：

    2025年7月7日

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  • Yan Yan,
  • Yi Li

摘要

In a duopoly market with asymmetric costs, we examine firms’ strategic incentives to create competing divisions when the more efficient firm has partial passive ownership holdings (PPOs) in the inefficient rival. We develop a two-stage game where firms choose the number of divisions in the first stage and all of the divisions engage in Cournot competition in the second stage. We show that the presence of PPOs guarantees the existence of an equilibrium with a finite number of divisions per firm. We also find that PPOs may have either a positive or a negative effect on firms’ incentives to divisionalize, depending on the efficiency gap between the two firms and the number of PPOs. Finally, the presence of PPOs can increase aggregate output and consumer surplus. We thus highlight a novel pro-competitive effect of PPOs.