Overlapping Ownership and Product Innovation

We characterize the effect of overlapping ownership (OO) on investments in product innovation. We analyze two opposing forces: (1) OO induces firms to internalize that success on their own behalf erodes the rivals’ business, reducing investments; (2) OO softens competition in the product market, enhancing investments. These forces also determine potential shifts between the stable symmetric investment equilibrium and asymmetric equilibria. We characterize circumstances such that the competition-softening effect, by stimulating investments, can induce OO to raise total welfare. We also study how an incumbent technology affects the threshold required for OO to possibly stimulate investments in innovation