Cross Ownership Under Strategic Tax Policy

Abstract We provide a new reason for the consumer surplus and welfare raising cross ownership. We show that cross ownership reduces the tax rate, and increases consumer surplus and welfare under Cournot and Bertrand competition when the marginal social cost/benefit of public funds is less than unity. We further show that Cournot competition creates higher consumer surplus and welfare compared to Bertrand competition if the marginal social cost/benefit of public funds is less than unity, thus providing a new reason for the Cournot-Bertrand welfare reversal.