On the implications of cross-ownership under green transformation

Abstract

Traditional wisdom suggests that cross-ownership lessens competition between rival firms, leading to lower total output produced, consequently reducing consumer surplus and environmental damage. By incorporating a Cournot duopoly model, where the firms endogenously determine whether or not to transform green by following a standard from an environmental regulator, we find the reverse implications in some circumstances. Surprisingly, a rise in cross-ownership level that induces the equilibrium to shift from non-transformation to partial transformation benefits both consumers and the environment. Our analysis also shows that full transformation (partial transformation, non-transformation) occurs in equilibrium if the environmental standard is low (medium, high). Moreover, cross-ownership extension stimulates (hinders) green transformation if its degree is low (high). These results also hold under an oligopoly.