Cross ownership versus merger under product differentiation

We compare the merger participants' profits under a merger and under cross ownership (CO) in an oligopolistic industry with horizontally differentiated products. We show under Cournot competition that the merger participants would be better off under a symmetric CO compared to a merger. This result holds under symmetric and asymmetric costs. Considering a unilateral CO under Cournot competition we show that the participating firms may prefer CO compared to a merger under asymmetric CO also. We further show under Cournot competition that a symmetric CO may create higher consumer surplus and welfare compared to both merger and non-cooperation in the presence of cost asymmetry and technology transfer between the firms engaging in CO or merger. If there is Bertrand competition, we show that the merger participants will not be better off under a symmetric CO compared to a merger.