Product differentiation, demand expansion and the welfare effects of cross-ownership

Banerjee, Swapnendu; Mukherjee, Arijit; Poddar, Sougata

Abstract

We show the effects of cross-ownership on product differentiation, consumer surplus and welfare under Cournot and Bertrand competition. Under Cournot competition, cross-ownership increases (decreases) product differentiation if demand expansion following product differentiation is large (small). Under Bertrand competition, cross-ownership may increase or decrease product differentiation regardless of the demand expansion effect of product differentiation. Cross-ownership may increase consumer surplus and welfare under both Cournot and Bertrand competition. Demand expansion following product differentiation and the type of product market competition play important roles for the effects of cross-ownership in an industry with endogenous product differentiation. We also show that Cournot competition may create higher consumer surplus and welfare compared with Bertrand competition.

Citation

Banerjee, S., Mukherjee, A., & Poddar, S. (2025). Product differentiation, demand expansion and the welfare effects of cross-ownership. Canadian Journal of Economics, 58(1), 193-226. https://doi.org/10.1111/caje.12759

• Journal Article Type: Article
• Acceptance Date: Aug 12, 2024
• Online Publication Date: Jan 27, 2025
• Publication Date: 2025-02
• Deposit Date: Sep 25, 2024
• Publicly Available Date: Jan 28, 2027
• Journal: Canadian Journal of Economics
• Print ISSN: 0008-4085
• Electronic ISSN: 1540-5982
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 58
• Issue: 1
• Pages: 193-226
• DOI: https://doi.org/10.1111/caje.12759
• Keywords: Consumer surplus; Cross ownership; Demand expansion; Product differentiation; Welfare
• Public URL: https://nottingham-repository.worktribe.com/output/39991003
• Publisher URL: https://onlinelibrary.wiley.com/doi/10.1111/caje.12759