Abstract: Cross-holding refers to a situation where a firm acquires passive ownership in another firm that entitles the acquiring firm a share in the acquired firm's profits but not decision rights. We characterize conditions under which a Cournot oligopolistic firm has incentives to engage cross-holdings in rivals. Our results imply in particular that multilateral cross-holdings can still be profitable even if bilateral cross-holdings are not. We also characterize conditions under which total welfare increases as the acquiring firm raises cross-holdings.
