Horizontal integration in the Dutch financial sector

In this paper, the consequences of cross-shareholding in an n-firm industry are analyzed. Our attention focuses on the case where firms have silent interests in each other. These interests can be direct or indirect. We analyze the effects of cross-shareholding on the price-cost margins in a Cournot and a Bertrand setting. In all cases, competition is reduced due to shareholding interlocks. As an empirical example the Dutch financial sector is used. Comparing the case of shareholding with the case of no-shareholding, the price-cost margins are found to be up to 2% higher in a Bertrand market, and at least 8% higher in a Cournot market. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: G20; L13; L41.