Should firms be allowed to invest in their competitors?

On 31 October 2008, TILEC held a seminar on the competitive effects of cross-ownership, the situation in which firms hold passive stakes in rivals operating on the same market. This feature is common in industries such as the automobile or airline industry but has failed to attract the attention of competition policy practitioners so far. Yossi Spiegel (Tel-Aviv University) explained that the incentives for firms to collude generally depend (in a complex way) on the whole set of partial cross-ownerships in an industry. Interestingly, when competitors are not identical, an increase in cross-participations may or may not increase the likelihood of tacit collusion, depending on the presence and behavior of an industry maverick, which calls for a differential treatment of such firms. Although passive investments may cause anticompetitive effects, antitrust authorities and courts in most of the Western world have adopted a rather lenient approach towards them (when the problem is acknowledged at all). David Gilo (Tel-Aviv University) presented a range of transactions that potentially affect competition but remain unchallenged under current regulation in the US and the EU. He then explored the desirability of applying merger rules to assess those transactions.