TUPD-2025-005
TITLE | Cross-border Partial Equity Ownership |
AUTHORS | Associate Professor, Faculty of Economics and Business Admin Fukushima University Professor, UNSW Business School Professor, Faculty of Economics, Hitotsubashi University Hiroshi MukunokiProfessor, Faculty of Economics, Gakushuin University |
P D F | ![]() |
PUBLISHED IN |
RIETI Discussion Paper Series 25-E-026
|
ABSTRACT | Firms often form a cross-border alliance by partially owning the equity. When and why do firms have cross-border partial equity ownership (PEO)? Under which conditions should a government give approval for firms to form such PEO? To address the questions, this paper develops an international oligopoly model where one foreign firm forms cross-border PEO with one home firm. PEO helps firms adjust production by avoiding trade costs but decreases market competition inducing a rival firm to take aggressive actions. We find that when cost differences between cross-border alliance firms are moderate, they choose PEO in order to shift the output between them most effectively while alleviating a rival firm’s aggressive actions. However, a government should ban this PEO from the viewpoint of welfare, since the negative effect of weakened competition dominates the positive effect of output shifting: only when cost differences are large, should a government approve cross-border PEO. |
KEYWORDS | Partial equity ownership, cross-border alliance, trade costs, oligopoly |
POSTED | March 2025 |