Overlapping Ownership, Sequential Moves, and Welfare

ABSTRACT We introduce overlapping ownership into a sequential‐move duopoly and identify procompetitive effects of internalization, in contrast with the predictions of standard simultaneous‐move models. Internalization of rival profits softens follower output and entry decisions, rendering the leader's output choice more aggressive. In Stackelberg equilibrium, higher follower cross‐ownership can increase total output and welfare if the follower remains active. This effect holds provided the follower's inclusive best response has a negative slope, and is stronger for inverse demands with lower curvature. Under entry deterrence, higher symmetric internalization arising from moderate common ownership raises welfare relative to a benchmark with independent firms if equilibrium shifts from accommodation to deterrence. Product differentiation attenuates the first effect under quantity competition, but is necessary for the second if firms compete in prices.