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Strategic interlocking directorates.

Authors :
Battaggion, Maria Rosa
Cerasi, Vittoria
Source :
Journal of Economic Behavior & Organization. Oct2020, Vol. 178, p85-101. 17p.
Publication Year :
2020

Abstract

This paper analyzes the choice to interlock as a strategic decision. The choice to invite an executive from a rival company to sit on the board is analyzed within a duopoly where firms with hidden marginal costs of production compete in the product market. Interlocking directorates may emerge as an equilibrium outcome whenever firms gain by disclosing information on their private costs. The degree of efficiency of the companies together with the type of competition, either quantity or price, affects the occurrence and the form of the interlocking. The equilibrium outcome can take different forms: unilateral, bilateral interlocking or no interlocking. We also derive the welfare implications of the different equilibria and show that interlocking directorates are detrimental for the consumers even without assuming collusive behavior in the market. In addition we extend the analysis to three firms to explore the dynamic of networks formation. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
01672681
Volume :
178
Database :
Academic Search Index
Journal :
Journal of Economic Behavior & Organization
Publication Type :
Academic Journal
Accession number :
146479095
Full Text :
https://doi.org/10.1016/j.jebo.2020.07.015